Answer:
The second investment will provide the highest amount of money.
Explanation:
Giving the following information:
Option A:
They had been thinking that they would wait at least 10 years and then start investing $3000 per year to prepare for retirement, 35 years later.
Option B:
They put $3000 per year away for the next 10 years - and then simply let that money sit for the next 35 years without any additional payments.
We will assume an interest rate of 10%.
For option A, we need to use the following formula:
FV= {A*[(1+i)^n-1]}/i
A= annual deposit
FV= {3000*[(1.10^35)-1]}/0.10= $813,073.11
For option B, first, we need to determine the 10 years investment:
FV= {3000*[(1.10^10)-1]}/0.10= 47,812.27
Now, we calculate the 35-year investment with the following formula:
FV= PV*(1+i)^n
FV= 47,812.27*(1.10^35)= $1,343,641.30
