Question

You set up a savings plan for retirement in 35 years. You will deposit $250 each month for 35 years. The account will earn an average of 6.5% compounded monthly.
a. How much will you have in your retirement plan in 35 years?
b. How much interest did you earn.
c. What percent of the balance is interest?

Could you show the formula in Excel? I think it is PV.

Answer 1

Ans:- In this question, we need to find the accumulated amount that will have in 35 years that means we need to find the Future Value. we will use the FV function of excel to find the answer.

Rate=6.5%/12, Nper=35*12 = 420. Pmt=-$250,PV=0,

Note:- Rate is divided by 12 because it is compounded monthly, Nper is the number of periods and Pmt is the periodic or monthly payment.

(a) Therefore, the Future Value after 35 years will be $400,079.05.

(b) Interest earned will be Total Amount earned - Amount Invested = $400,079.05 - $250 * 35 *12 = $295,079.05 (approx)

(c) Interest percentage will be Interest amount / Total amount * 100 = $295.079.05 / $400,079.05 * 100 = 73.76% (approx).

Note:- In this question, we need to find the Future Value not the Present value because it is clearly asking in part (a) how much will you have in your retirement plan in 35 years.

Note:- If this answer helps you pls give thumbs up.