Question

A couple saves $500.00 per month (end of the month) for 40.00 years. They can earn a 6.00% annual interest with monthly compounding on this account. The couple wants their retirement account to last for 25.00 years. When they retire, they will move their savings into a money market fund that pays 2.40% annual interest with monthly compounding. What is the value of this account when they retire?

Answer 1

Answer:

Future Value= $995,745.37

Explanation:

Giving the following information:

A couple saves $500.00 per month (end of the month) for 40.00 years. They can earn a 6.00% annual interest with monthly compounding on this account.

First, we need to calculate the monthly interest rate:

i=0.06/12= 0.005

Now, using the following formula, we can calculate the future value of the account:

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

A= annual deposit= 500

i=0.005

n=40*12= 480

FV= {500*[(1.005^480)-1]}/0.005= $995,745.37