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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.

  1. If he invests this sum at the end of every year at 9%, then how much will be accumulated by retirement time?
  2. If by astute investing the interest rate could be raised to 12%, then what sum could be saved?
  3. 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?
  4. 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

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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

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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
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