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In: Economics

An Individual who makes $32,000 per year anticipate retiring in 30 years. If his salary is...

An Individual who makes $32,000 per year anticipate retiring in 30 years. If his salary is increased by $600 each year and he deposits 10% of his yearly salary into a fund that earns 7% interest, what is the future worth at retirement? Please don't copy from Chegg. Show work!

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Expert Solution

The cash flow for year 1 is 10% of salary =0.1*32000=$3200

Each every salary increase by $600, so savings increase by= 0.1*600=$60

We use the concept of Future Worth=Future Worth Factor*Cash Flows

Future Worth Factor= (1+i)30-n where n= no. of years and i=7%

Year(n) Salary Cash Flows(Savings) Future Worth Factor= (1+i)^(30-n) Future Worth= Future Worth Factor*Cash Flows
1 32000 3200 7.114257049 22765.62256
2 32600 3260 6.648838364 21675.21307
3 33200 3320 6.21386763 20630.04053
4 33800 3380 5.807352925 19628.85289
5 34400 3440 5.42743264 18670.36828
6 35000 3500 5.072366953 17753.28434
7 35600 3560 4.740529863 16876.28631
8 36200 3620 4.430401741 16038.0543
9 36800 3680 4.140562375 15237.26954
10 37400 3740 3.869684462 14472.61989
11 38000 3800 3.616527535 13742.80463
12 38600 3860 3.379932276 13046.53858
13 39200 3920 3.158815211 12382.55563
14 39800 3980 2.952163749 11749.61172
15 40400 4040 2.759031541 11146.48742
16 41000 4100 2.57853415 10571.99002
17 41600 4160 2.409845 10024.9552
18 42200 4220 2.252191589 9504.248505
19 42800 4280 2.104851952 9008.766356
20 43400 4340 1.967151357 8537.436891
21 44000 4400 1.838459212 8089.220535
22 44600 4460 1.71818618 7663.110362
23 45200 4520 1.605781476 7258.132274
24 45800 4580 1.500730352 6873.345011
25 46400 4640 1.402551731 6507.84003
26 47000 4700 1.31079601 6160.741247
27 47600 4760 1.225043 5831.20468
28 48200 4820 1.1449 5518.418
29 48800 4880 1.07 5221.6
30 49400 4940 1 4940
Net Future Value $357526.6188

Rahul Sunny answered 2 years ago
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