Question

Marisa Gale, a 25-year-old personal loan officer at Second National Bank, understands the importance of starting early when it comes to saving for retirement. She has designated $2,500 per year for her retirement fund and assumes she'll retire at age 65. How much will she have if she invests in CDs and similar money market instruments that earn 6 percent on average? Round your answer to the nearest dollar. $ How much will she have if instead she invests in equities and earns 10 percent on average? Round your answer to the nearest dollar. $ Marisa is urging her friend, Nolan Ransom, to start his plan right away because he's 40. What would his nest egg amount to if he invested in the same manner as Marisa and he, too, retires at age 65? Round your answer to the nearest dollar. Nest egg amount at 6% = $ Nest egg amount at 10% = $ Comment on your findings. Feedback

Answer 1

FV of annuity
The formula for the future value of an ordinary annuity, as opposed to an annuity due, is as follows:
P = PMT x ((((1 + r) ^ n) - 1) / r)
Where:
P = the future value of an annuity stream	To be calculated
PMT = the dollar amount of each annuity payment	2500
r = the effective interest rate (also known as the discount rate)	6%/10%
n = the number of periods in which payments will be made	40
Marisa Gale
	6%	10%
Future value=	P = PMT x ((((1 + r) ^ n) - 1) / r)	P = PMT x ((((1 + r) ^ n) - 1) / r)
Future value=	2500* ((((1 + 6%) ^ 40) - 1) / 6%)	2500* ((((1 + 10%) ^ 40) - 1) / 10%)
Future value=	386,904.91	1,106,481.39
Nolan Ransom
	6%	10%
Future value=	P = PMT x ((((1 + r) ^ n) - 1) / r)	P = PMT x ((((1 + r) ^ n) - 1) / r)
Future value=	2500* ((((1 + 6%) ^ 25) - 1) / 6%)	2500* ((((1 + 10%) ^ 25) - 1) / 10%)
Future value=	137,161.28	245,867.65