Question

You invest $10,000 today into a retirement account. You expect to earn 11 percent, compounded monthly, on your money for the next 25 years. After that, you want to be more conservative, so only expect to earn 7 percent, compounded semi-annually. How much money will you have in your account when you retire 40 years from now, assuming that this is the only deposit you make into the account?

A. $443,908

B. $397,062

C. $441,387

D. $483,928

E. $433,590

Answer 1

n = Total months for 25 years = 25 * 12 =	300
r = rate per month = 11%/12
Amount at the end of 25 years = Present value * (1+r)^n = 10000 * (1+11%/12)^300 =	154478.89
After 25 years :
n = Total semi-annual periods in 15 years = 15 * 2 =	30
r = semi-annual rate = 7%/2 =	3.5%
Amount at the end of 40 years = Amount at the end of 25 years * (1+r)^n = 154478.89 * (1+3.5%)^30 =	433590	Option E