Question

For this assignment, you will read the scenario and then use the provided Excel and Word document templates to complete your assignment before uploading them to the assignment submission area.

Scenario

Larry and Beth are both married, working adults. They both plan for retirement and consider the $6,000 annual contribution a must.

First, consider Beth's savings. She began working at age 20 and began making an annual contribution to her IRA of $6,000 each year until age 32 (12 contributions). She then left full-time work to have children and be a stay-at-home mom. She left her IRA invested and plans to begin drawing from her IRA when she is 65.

Larry started contributing to his IRA at age 32. In the first 12 years of his working career, he used his discretionary income to buy a home, upgrade the family cars, take vacations, and pursue his golfing hobby. At age 32, he made his first $6,000 contribution to an IRA and contributed $6,000 every year up until age 65 (33 contributions). He plans to retire at age 65 and make withdrawals from his IRA.

Both IRA accounts grow at an 8% annual rate. Do not consider any tax or inflation effect.

Instructions: Please answer in the below format only

• Create a chart summarizing the details of the investment for both Larry and Beth.
• Write a one-paragraph summary in which you explain the results in terms of the time value of money for both Larry and Beth. (Hint: discuss why one person was able to save a great deal more than the other.)

Answer 1

The value of investment for first person would be 1,558,796.38 at the end of 65 year and value of investment for second person would be 945,760.02

The information is not properly visible hence unable to include name of the person in response.

It is assumed that investment is made at the end of period and accordingly interest on same will be considered in next period only.

The value of investment indicates the power of compounding over a period of time. The power of compounding is greater when investment time period is higher. This also indicate that saving initiated at young age yields higher interest.

Though first person makes only 12 contribution but as he starts early from 20 th year, the first contribution made at end of 20th year get compounding interest for the period of 45 years, the contribution made in 21st year would get compounding interest of 44 years & so on.

On other hand the person initiating investment at 32 year age, his first contribution made on 32nd year would get compounding interest for 33 years & so on.

Value of Investment for first person who started investing from 20th Year

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Value of Investment for first person who started investing from 32nd Year