Question

Raul is a saver. He sets aside $100 per month during his career of 40 years to prepare for retirement. He does not like the idea of investing because he prefers to minimize his risk as much as possible, so he puts his money in a savings account which earns 1.5% interest per year.

Answer 1

The total balance in Raul's account after 40 years when he retires is $65,714.90.

What is the total balance?

The formula that can be used to determine the balance of the accout is: monthly amount saved x annuity factor.

Annuity factor = {[(1+r)^n] - 1} / r

Where:

• r = interest rate = 1.5/12
• n = number of periods = 12 x 40 = 480

$100 x [(1.00125^480) - 1 ] / 0.00125 = $65,714.90

Here is the complete question:

Raul is a saver. He sets aside $100 per month during his career of 40 years to prepare for retirement. He does not like the idea of investing because he prefers to minimize his risk as much as possible, so he puts his money in a savings account which earns 1.5% interest per year. What is the balance in the account after 40 years?

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