Question

Dave is going to contribute $200 per month on the first day of each month into a retirement account starting today for 30 years. If Dave can earn a monthly rate of 0.5%, the amount he will he have in his retirement account 40 years from now is closest to what value? Yes, you heard me right, Dave is making monthly payments for 30 years (at the beginning of each year), but no payments are made for the last 10 years; however, you want to know the value of these payments 40 years from today. Assume monthly compounding.

Select one:

a. $367,200

b. $367,500

c. $367,750

d. $367,900

e. $367,350

Answer 1

Based on given data, pls find below workings;

Answer is (e) : $ 367350

In Step 1, NPER = 30 years * 12 months = 360 months and in Step 2, NPER = 10 years * 12 months = 120 months

Step 1:
Investment	Rate (I/Y) - Monthly	Period (NPER)	Payment at	PMT / Monthly	Amount (FV)
For 30 years	0.50%	360	Beginning	200	2,01,908
					FV(0.50%,360,-200,,1)
Step 2:
The derived FV is at at end of 30 years, however, as per the required, need to compute the value as at end of 40 years
Hence, need to project the value for further 10 years (from Year 30), with FV (as at Year 30) as PV (as Year 30);
Investment	Rate (I/Y) - Monthly	Period (NPER)	Payment at	PV (at Year 30)	Amount (FV)
For 10 years	0.50%	120	Onetime	2,01,908	3,67,350
					FV(0.50%,120,,-201908,1)