In: Finance
Upon graduating from college 35 years ago, Dr. Nick Riviera was
already planning for his retirement. Since then, he has made
deposits into a retirement fund on a semiannually basis in the
amount of $600. Nick has just completed his final payment and is
at last ready to retire. His retirement fund has earned 11 percent
compounded semiannually. Use five decimal places for the periodic
interest rate in your calculations.
a. How much has Nick accumulated in his retirement account?
b. In addition to this, 15 years ago Nick received an inheritance
check for $20,000 from his beloved uncle. He decided to deposit
the entire amount into his retirement fund. What is his current
balance in the fund?
a) Since it is an annuity, we use the Future value of Annuity
formula
Here P = 600, n = 35 x 2 = 70, r = 11%/2 = 5.5%
Hence FV = 600 x [(1.055)70 -1)/0.055] = 451,962.72
b) We use the Compounding Formula for the 20,000 deposited for a
period of N' = 15 x 2 = 30
Rate per period is 5.5%
Hence FV = PV.(1 + r)N' = 20,000 x (1.055)30 = 99,679.03
Therefore Total Fund Balance = 99,679.03 + 451,962.72 = 551,641.75