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At age 21 Julio begins saving $750 each year until age 35 (15 payments) in an...

At age 21 Julio begins saving $750 each year until age 35 (15 payments) in an ordinary annuity paying 6.5% annual interest compounded yearly and then leaves his money in the account until age 65 (30 years). His friend Max begins at age 41 saving $1,500 per year in the same type of account until age 65 (25 payments). How much does each have in his account at age 65?

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Expert Solution

Julio

Information provided:

Annual saving= $750

Time= 15 years

Interest rate= 6.5%

Ordinary annuity refers to an annuity that occurs at the end of the period.

The question is solved by calculating the future value.

Enter the below in a financial calculator to compute the future value:

PMT= 750

N= 15

I/Y= 6.5

Press the CPT key and FV to compute the future value.

The value obtained is 18,136.63.

The amount saved by Julio till age 35 is $18,136.63.

The amount saved by Julio till age 65 is calculated by entering the below in a financial calculator:

PV= -18,136.63

N= 30

I/Y= 6.5

Press the CPT key and FV to compute the future value.

The value obtained is 119,962.31.

The amount saved by Julio till age 65 is $119,962.31.

Max

Information provided:

Annual saving= $1,500

Time= 25 years

Interest rate= 6.5%

The amount saved by Julio till age 65 is calculated by entering the below in a financial calculator:

PMT= 1,500

N= 25

I/Y= 6.5

Press the CPT key and FV to compute the future value.

The value obtained is 88,331.52.

The amount saved by Max till age 65 is $88,331.52.

jeff jeffy answered 1 year ago

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