Question

In: Finance

Consider that you are 40 years old and have just changed to a new job. You...

Consider that you are 40 years old and have just changed to a new job. You have $141,000 in the retirement plan from your former employer. You can roll that money into the retirement plan of the new employer. You will also contribute $6,300 each year into your new employer’s plan.

  

If the rolled-over money and the new contributions both earn an 7 percent return, how much should you expect to have when you retire in 25 years? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Solutions

Expert Solution

Value of investments in 25 Years $ 11,63,736.94

Working:

Step-1:Calculation of Future Value of $ 141,000
Future Value of Present Value = Present Value x Fuure Value of 1
= $          1,41,000 x             5.42743
= $    7,65,268.00
Workking:
Future Value of 1 = (1+i)^n Where,
= (1+0.07)^25 i 7%
=    5.42743 n 25
Step-2:Calculation of future value of annual contribution
Future Value of annual contribution = Annual contribution x future value of annuity of 1
= $ 6,300 x 63.24904
= $ 3,98,468.94
Working:
Future Value of annuity of 1 = (((1+i)^n)-1)/i Where,
= (((1+0.07)^25)-1)/0.07 i 7%
=             63.24904 n 25
Step-3:Calculation of future value of total investment
Future Value of total Investments = $    7,65,268.00 + $ 3,98,468.94
= $ 11,63,736.94

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