Question

You are graduating from college at the end of this semester and after reading the The Business of Life box in this​ chapter, you have decided to invest ​$5,600 at the end of each year into a Roth IRA for the next 41 years. If you earn 10 percent compounded annually on your​ investment, how much will you have when you retire in 41 ​years? How much will you have if you wait 10 years before beginning to save and only make 31 payments into your retirement​ account?

Answer 1

FV = PV (1 + r)n

where, FV = Future Value of Investment

PV = Present Value of Investment

r = Rate of Interest

n = no. of years the amount will be invested

In Excel, Future Value can be calculated using FV Formula where, FV = (rate,nper,pmt,[pv],type)

rate = Rate of Interest

nper = No. of periods

pmt = Amount of periodic payment

pv = Present Value (Optional Field)

type = when the payment is due, in the beginning or at the end of the year

Value of Investment made for 41 Years = FV(0.1,41,-5600,,0)

= $ 2,731,970

Value of Investment made for 31 Years = FV(0.1,31,-5600,,0)

= $ 1,018,883

Alternative Approach

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