Question

Your job pays you only once a year for all the work you did over the previous 12 months. Today, December 31, you just received your salary of $57,000 and you plan to spend all of it. However, you want to start saving for retirement beginning next year. You have decided that one year from today you will begin depositing 5 percent of your annual salary in an account that will earn 10 percent per year. Your salary will increase at 6 percent per year throughout your career. How much money will you have on the date of your retirement 45 years from today?

Answer 1

Answer:

The money will you have on the date of your retirement 45 years from today is $4,465,480.95

Explanation:

In order to calculate the money that you will have on the date of your retirement 45 years from today we would have to calculate the following formula:

money that you will have on the date of your retirement 45 years from today=PV(1+r)∧n

To calculate the PV first we need to calculate the deposit amount as follows:

deposit=5%*($57,000+($57,000*6%)

deposit=$3,021

Hence, PV would be calculated as follows:

PV=$3,021*(1-(1+6%/1+10%)∧45/10%-6%

PV=$3,021*1-(0.9636363636)∧45/10%-6%

PV=$3,021*0.81116038/0.04

PV=$61,262.88

Therefore, money that you will have on the date of your retirement 45 years from today=$61,262.88*(1+10%)45

Therefore, money that you will have on the date of your retirement 45 years from today=$4,465,480.95

The money will you have on the date of your retirement 45 years from today is $4,465,480.95