Question

In: Finance

12. Your friend thought you were goofy for saving so young andinstead spent it on...

12. Your friend thought you were goofy for saving so young and instead spent it on "living". Your friend started investing $3,500 at the end of each year at age 30 through age 67 this morning (a total of 38 years). Your friend is bemoaning the fact that s/he worked so long and you did not, but bragged how much was in their retirement account, so “at least that is a benefit”. S/he also earned 8.77%, how much is in the account?  

Solutions

Expert Solution

FV of Annuity :
Annuity is series of cash flows that are deposited at regular intervals for specific period of time.
FV of Annuity = CF [ (1+r)^n - 1 ] / r
r - Int rate per Year
n - No. of Years
FV of Annuity
Particulars Amount
Cash Flow $      3,500.00
Int Rate 8.770%
Periods (Given) 38
FV of Annuity = Cash Flow * [ [ ( 1 + r ) ^ n ] - 1 ] /r
= $ 3500 * [ [ ( 1 + 0.0877 ) ^ 38 ] - 1 ] / 0.0877
= $ 3500 * [ [ ( 1.0877 ) ^ 38 ] - 1 ] / 0.0877
= $ 3500 * [ [24.3976] - 1 ] / 0.0877
= $ 3500 * [23.3976] /0.0877
= $ 933769.17

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