Question

One of my favorite examples of the Time Value of Money is investing into YOU!!! Assume for the moment you start putting $30 a week into an IRA at age 25, you invest it into "Index funds", when would you become a millionaire? What if you put in an extra $5 per week the next year ($35), then $40 the next year...? http://news.morningstar.com/index/indexReturn.html http://www.1stock1.com/1stock1_112.htm

Answer 1

Dear student for understanding and solving this question you should understand some terminologies first.

1) Index Fund :- As the name suggests, it is a fund that invests in an Index. In other words, it performs in the same tandem as Index performs. It replicates the index in the same weightage or in the same proportion as we can see in the Index.

2) IRA :-An individual retirement account is an investing tool individuals use to earn and earmark funds for retirement savings. There are several types of IRAs as of 2018: traditional IRAs, Roth IRAs, SIMPLE IRAs and SEP IRAs. Sometimes referred to as individual retirement arrangements, IRAs can consist of a range of financial products such as stocks, bonds or mutual funds.

3) Time Value Of Money :- Time value of money (TVM) is the idea that money that is available at the present time is worth more than the same amount in the future, due to its potential earning capacity. This core principle of finance holds that provided money can earn interest, any amount of money is worth more the sooner it is received.

You can use the following formulas for calculating the time you will get millionaire.

Calculate n

FV = Future Value ( Desired Value) 1000000

R = Periodic Investment

I = Interest Rate

As you have not provide with details of interest on IRA and Return On Index Fund it will not possible for me to calculate the time.

You can better use the Excel for solving this.