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 1 year ago

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