Question

Pamela is also a saver. She sets aside $200 per month during her 40 year career. She invests in the US stock market* through an index fund that averages a 7% return over this 40 year period. How much is her retirement account worth?

Answer 1

Answer:

$32,183.77

Explanation:

The value of her investment at the end of the 40th year will be equal to the accumulated sum pf the monthly payment compounded at the 7% rate of return.

This is given as follows:

FV = A × (1 -(1+r)^(-n))/r

 A- monthly payment, r- monthly interest rate, n- number of months

A- 200, r- 7%/12 =0.583%, n = 40 × 12 = 480

FV = 200× (1- (1.00583)^(-480))/0.00583

     =32,183.767

     = $32,183.77