Question

1. Find the balance after 5 years in a savings account that pays 2.5% APR compounded monthly if deposits are made to the account each month in the amount of $100.

2. A friend has an IRA with an APR of 6.25%. She stared the IRA at age 25 and deposits $50 per month.
          a) How much will her IRA contain when she retires at age 65?
          b) How much money did she contribute to the account?
          c) Use the answers from parts a) and b) to determine the amount of interest earned.

3. What if your friend from question #2 doubled her deposit and saved $100 per month? Do you think her money would double? Let's find out! Redo question #4, all the parts, with a monthly deposit of $100 per month. Were you surprised by the results?

4. At age 35 you start saving for retirement. Your investment plan pays 6% APR compounded monthly and you want to have $2,000,000 when you retire at age 65.
        a) How much do you need to save each month?
        b) Suppose you had started saving when you were 30 years old. How much would you need to save each month?
        c) Suppose you had started saving when you were 25 years old. How much would you need to save each month?
        d) Were you surprised by the answers in parts a - c? Discuss the effect of time on the growth of money.

Answer 1