Question

Assume that you contribute $300 per month to a retirement plan for 25 years. Then you are able to increase the contribution to $500 per month for 20 years. Given a 9 percent interest rate, what is the value of your retirement plan after 45 years

Answer 1

Answer:

Total FV= $2,555,406.98

Explanation:

Giving the following information:

Investment 1:

Monthly deposit= $300

Number of months= 12*45= 540

Interest rate= 0.09/21= 0.0075

Investment 2:

Monthly deposit= $500

Number of months= 12*20= 240

Interest rate= 0.09/21= 0.0075

To calculate the future value, we need to use the following formula on each investment. I separated into two to simplify calculations.

FV= {A*[(1+i)^n-1]}/i

A= monthly deposit

Investment 1:

FV= {300*[(1.0075^540) - 1]} / 0.0075

FV= $2,221,463.54

Investment 2:

FV= {500*[(1.0075^240) - 1]} / 0.0075

FV= $333,943.44

Total FV= $2,555,406.98