Question

Retirement Investment Advisors, Inc., has just offered you an annual interest rate of 6 percent until you retire in 40 years. You believe that interest rates will increase over the next year and you would be offered 6.6 percent per year one year from today. If you plan to deposit $18,000 into the account either this year or next year, how much more will you have when you retire if you wait one year to make your deposit

Answer 1

Answer:

$32,529.54

Explanation:

To determine the answer the difference in future value of the investment options have to be determined

The formula for calculating future value:

FV = P (1 + r)^n

FV = Future value  

P = Present value  

R = interest rate  

N = number of years

First option

$18,000 x (1.06)^40 = $185,142.92

Second option

$18,000 x (1.066)^39 = $217,672.46

Difference in future values = $217,672.46 -  $185,142.92 = $32,529.54