Question

Related to The Business of​ Life: Saving for​ Retirement)  ​(Future value of an ordinary​ annuity)  You are graduating from college at the end of this semester and after reading the The Business of Life box in this​ chapter, you have decided to invest ​$4,900 at the end of each year into a Roth IRA for the next 45 years. If you earn 10 percent compounded annually on your​ investment, how much will you have when you retire in 45 ​years? How much will you have if you wait 10 years before beginning to save and only make 35 payments into your retirement​ account?

How much will you have when you retire in 45years?

​$ _____ ​(Round to the nearest​ cent.)

Answer 1

Information provided:

Annual investment= $4,900

Time= 45 years

Yield to maturity= 10%

The question pertains to ordinary annuity. Ordinary Annuity refers to an annuity that occurs at the end of the period.

The future value of an ordinary annuity can be computed with the help of a financial calculator. The calculator by default is the END mode which is needed to calculate ordinary annuity values.

The future value can be computed by entering the below:

PMT= -4,900

I/Y= 10

N= 45

Press CPT and FV to compute the future value.

The value obtained is 3,522,633.70.

The I will have $3,522,633.70 when I retire in 45 years.

2.Information provided:

Annual investment= $4,900

Time= 35 years

Yield to maturity= 10%

The question pertains to ordinary annuity. Ordinary Annuity refers to an annuity that occurs at the end of the period.

The future value of an ordinary annuity can be computed with the help of a financial calculator. The calculator by default is the END mode which is needed to calculate ordinary annuity values.

The future value can be computed by entering the below:

PMT= -4,900

I/Y= 10

N= 35

Press CPT and FV to compute the future value.

The value obtained is 1,328,019.41.

The I will have $1,328,019.41 when I retire in 35 years.