Question

In: Accounting

social Security tax is 12.4%. assume you earn 100,000$ a year if instead of paying taxes...

social Security tax is 12.4%. assume you earn 100,000$ a year if instead of paying taxes you could invest in private Social Security.how much would you be in your account after 40 years I don't I don't 8% rate of return?

Solutions

Expert Solution

Annual contribution = 100000*12.4% = 12,400

FV of annuity = P * [ (1+r)^n -1 ]/ r
Periodic payment P= $              12,400.00
rate of interest per period r=
Rate of interest per year 8.0000%
Payment frequency Once in 12 months
Number of payments in a year                            1.00
rate of interest per period 0.08*12/12 8.0000%
Number of periods
Number of years                               40
Number of payments in a year                                  1
Total number of periods n=                               40
FV of annuity = 12400* [ (1+0.08)^40 -1]/0.08
FV of annuity =            3,212,300.83

Amount in 40 years is $3,212,300.83


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