Question

When you retire 35 years from now, you want to have $1.25 million. You think you can earn an average of 13.5 percent on your investments. To meet your goal, you are trying to decide whether to deposit a lump sum today, or to wait and deposit a lump sum 2 years from today. How much more will you have to deposit as a lump sum if you wait for 2 years before making the deposit

Answer 1

Answer:

$19,144.61

Explanation:

The first step would be to determine the present value of $1.25 million. After, the future value of that amount in 2 years has to be calculated

The formula for calculating future value:

P = FV / (1 + r)^n

FV = Future value  

P = Present value  

R = interest rate  

N = number of years

$1.25 million /  (1.135)^35 = $14,861.23

Now we find the future value using this formula :

FV = P (1 + r)^n

$14,861.23 x (1.135)^2 = $19,144.61