Question

Given the expected return of 12% for stocks and 6% for bonds, your retirement account is split between those two asset classes, how much money would have when you retire if you put in $5,000 each year and you work for 40 years? How much would you have if you put all your money in bonds? Or all your money in stocks?

Answer 1

We would use future value of annuity formula to calculate amount received on retirement
Calculate future value if entire amount is invested in bond
Future value	Annuity amount*(((1+r)^n-1)/r)
Future value	5000*((1.06^40)-1)/0.06)
Future value	5000*154.762
Future value	$773,809.83
Thus, amount received on retirement if invested in bond is $773,809.83
Calculate future value if entire amount is invested in stock
Future value	Annuity amount*(((1+r)^n-1)/r)
Future value	5000*((1.12^40)-1)/0.12)
Future value	5000*767.09
Future value	$3,835,457.10
Thus, amount received on retirement if invested in stock is $3,835,457.10