A young engineer decides to save $240 per year toward retirement in 40 years. If he...

A young engineer decides to save $240 per year toward retirement in 40 years.

If he invests this sum at the end of every year at 9%, then how much will be accumulated by retirement time?
If by astute investing the interest rate could be raised to 12%, then what sum could be saved?
If he deposits one fourth of this annual amount each quarter ($60 per quarter) in an interest bearing account earning a nominal annual interest rate of 12%, compounded quarterly, how much could be saved by retirement time?
In part (c), then what annual effective interest rate is being earned?

Solutions

Expert Solution

The amount accumulated by retirement time is calculated using the following equation:-

The amount accumulated by retirement time = $ 81091.79 $ 81092

--------------------------------------------------------------------

If the interest rate rises to 12%, the amount that could be saved is calculated as follows

The amount accumulated by retirement time = $ 184101.94 $ 184102

----------------------------------------------------------------------------

If one fourth of the annual amount is deposited, the amount saved by retirement is calculated as follows

The amount accumulated by retirement time = $ 224457.1 $ 224457

The effective interest rate is calculated as follows

Annual effective interest rate earned = 12.55%

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

How should young adults save toward your retirement? How do young adults know they are on...

How should young adults save toward your retirement? How do young adults know they are on track? Additionally, what are the averages on how much should be saved by age?

Derek decides that he needs $132,685.00 per year in retirement to cover his living expenses.

Derek decides that he needs $132,685.00 per year in retirement to cover his living expenses. Therefore, he wants to withdraw $132685.0 on each birthday from his 66th to his 88.00th. How much will he need in his retirement account on his 65th birthday? Assume a interest rate of 7.00%

Derek decides that he needs $171,993.00 per year in retirement to cover his living expenses. Therefore,...

Derek decides that he needs $171,993.00 per year in retirement to cover his living expenses. Therefore, he wants to withdraw $171993.0 on each birthday from his 66th to his 85.00th. How much will he need in his retirement account on his 65th birthday? Assume a interest rate of 9.00%

You are planning to save for retirement over the next 40 years. To do this, you...

You are planning to save for retirement over the next 40 years. To do this, you will invest $200 per month in a retirement account. The rate of return for the retirement account is expected to be 9 percent per year. After you retire, you expect that the account will have an annual return of 3 percent. How much can you withdraw each month from your account assuming a 25-year withdrawal period during retirement?

You are planning to save for retirement over the next 40 years. To do this, you...

You are planning to save for retirement over the next 40 years. To do this, you will invest $900 per month in a stock account and $500 per month in a bond account. The return of the stock account is expected to be 8 percent per year (compounded monthly), and the bond account will pay 6 percent per year (compounded monthly). When you retire, you will combine your money into an account with a 4 percent per year return (compounded...

You are planning to save for retirement over the next 40 years. To do this, you...

You are planning to save for retirement over the next 40 years. To do this, you plan to invest $5,000 a year in a stock account at the beginning of each year. In 10 years, you plan to diversify your portfolio by investing $3,000 a year in a bond account. The return of the stock account is expected to be 8 percent, and the bond account will pay 4 percent. When you retire, you will combine your funds into an...

You are planning to save for retirement over the next 30 years. To save for retirement,...

You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $1,850 per month in a stock account in real dollars and $610 per month in a bond account in real dollars. The effective annual return of the stock account is expected to be 10 percent, and the bond account will earn 6 percent. When you retire, you will combine your money into an account with an effective return of 8 percent....

You are planning to save for retirement over the next 30 years. To save for retirement,...

You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $1,450 a month in a stock account in real dollars and $570 a month in a bond account in real dollars. The effective annual return of the stock account is expected to be 10 percent and the bond account will earn 6 percent. When you retire, you will combine your money into an account with an effective annual return of 7...

You are planning to save for retirement over the next 30 years. To save for retirement,...

You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $1,450 per month in a stock account in real dollars and $570 per month in a bond account in real dollars. The effective annual return of the stock account is expected to be 10 percent, and the bond account will earn 6 percent. When you retire, you will combine your money into an account with an effective return of 7 percent....

You are planning to save for retirement over the next 30 years. To save for retirement,...

You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $1,300 per month in a stock account in real dollars and $555 per month in a bond account in real dollars. The effective annual return of the stock account is expected to be 12 percent, and the bond account will earn 8 percent. When you retire, you will combine your money into an account with an effective return of 9 percent....

Subjects