Question

In: Accounting

8.) You graduate from college and start work. You establish an investment plan whereby you contribute...

8.) You graduate from college and start work. You establish an investment plan whereby you contribute $165 from each of your monthly paychecks and get 5.25% interest compounded monthly. You have your first payment payroll deducted and deposited into the IRA (individual retirement account) at the end of your first month's work. If you intend to work for 45 years, what will be the value of this investment when you retire? Show work

Expert Solution

Formula for calculation of monthly compound interest with regular contributions:-

A = Future Value of investment

P = Principle amound invested (the original contribution)

C = Regular contributions (additional money added to investment)

r = Interest rate investment is earning

n = Number of times interest compounds

For, 12 = monthly, 4 = quarterly, 2 = semi-annually, 1 = annually

t = Number of years investment will be active

Here,

P = 0;

C = $165 monthly

r = 5.25% P.A.

n = 12 i.e. monthly

t = 45 years

Therefore, with the help of above formula we can calculate the following:-

Future Value = $362,235.50

Total Deposits = $89,100

Interest Earned = 273,135.50

Here, we are assuming no income tax & no inflation during this period.

ekkarill92 answered 2 years ago

As a recent college graduate, you are excited to start the search for your first career...

As a recent college graduate, you are excited to start the search for your first career position. You have already started interviewing for opportunities as a management trainee. You have been fortunate to have two interviews so far, and you identified several other companies to apply to at a recent job fair. From what you have learned, it seems that the starting salary for a job as a management trainee in your area is about the same at all companies....

You plan to graduate at age 23 and start saving for retirement at age 24. You...

You plan to graduate at age 23 and start saving for retirement at age 24. You save as follows: Age 24-35 $6,000 per year Age 36-50 $5,000 per year Age 51-60 $2,000 per year Age 61-65 $8,000 per year How much money will you be able to withdrawal from ages 66-90 as regular amounts assuming all money earns 6.5% interest? Please use excel and show equations

You are a college student and you plan to purchase a new car after you graduate...

You are a college student and you plan to purchase a new car after you graduate and begin your first job. You want to start saving for a down payment now on a new car in the future . You decide to make monthly payment into a saving account, which earns 2.5% annual interest compounded monthly. You will calculate a monthly payment into the saving account for each scenario. A.To save $4,000 for 3 years. B.To save $5,000 for 3...

Twins graduate from college together and start their careers. Twin 1 invests $2000 at the end...

Twins graduate from college together and start their careers. Twin 1 invests $2000 at the end of each year for 10 years only (until age 33) in an account that earns 7%, compounded annually. Suppose that twin 2 waits until turning 40 to begin investing. How much must twin 2 put aside at the end of each year for the next 25 years in an account that earns 7% compounded annually in order to have the same amount as twin...

You work for a private wealth management firm that follows an “external investment” model, whereby it...

You work for a private wealth management firm that follows an “external investment” model, whereby it decides which outside managers it should recommend to clients. One mutual fund that is a candidate for inclusion on your Premier Recommended List of approved managers is Active Fund (AFNDX), an actively managed stock portfolio benchmarked to the Standard & Poor’s 500 (SPX) Index. You have been asked to perform an evaluation of AFNDX’s past investment performance, using a sample of monthly returns on...

After you graduate, you plan to work for another twenty years and then retire and move...

After you graduate, you plan to work for another twenty years and then retire and move to a low-cost area. You think you can save $2500 a year for the first 5 years, and $3500 a year for the next 10 years, and $6000 a year for the last 5 years. If you can earn 3.5% a year on your savings in a reasonably safe investment, how much will you have from these savings when you retire?

Suppose you are fresh out of college and plan to immediately start working and retire in...

Suppose you are fresh out of college and plan to immediately start working and retire in 40 years, after which you plan to live for another 20 years after retirement. Assuming that the interest rate from now until the end of retirement will average about 5% and that your income before retirement will likely be about $80,000 per year, how much should you save annually between now and retirement: If you want to replace about 75% of your pre-retirement income after...

(a). A college student is 23 years old and a recent graduate. He wants to start...

(a). A college student is 23 years old and a recent graduate. He wants to start saving for his retirement. He plans to save $2000 per year in an online stock account that pays annual return of 12%. If he sticks to the plan, how much money will he have at the age of 65? (make a time-line). (b). Suppose he starts saving for the retirement at the age of 40. If he uses the same plan above, how much...

Sally is a recent college graduate. She has a plan for retirement as shown in the...

Sally is a recent college graduate. She has a plan for retirement as shown in the table below: Years Sally savings per year 1-10 $6,000 11-20 $10,000 21-30 $11,000 Sally expects to earn 7% per year on their savings. How much does Sally expect to have at the end of 30 years? Round your answer to the nearest dollar, for example 438597. Mary and Fred both want to retire 10 years form now. The table shows the amount of money...

34. Suppose you are fresh out of college and plan to immediately start working and retire...

34. Suppose you are fresh out of college and plan to immediately start working and retire in 40 years, after which you plan to live for another 20 years after retirement. Assuming that the interest rate from now until the end of retirement will average about 5% and that your income before retirement will likely be about $80,000 per year, how much should you save annually between now and retirement: a. If you want to replace about 75% of your...