ACG32: FINANCE AND INVESTMENT - STUDY PERIOD 1, 2008

Compound interest is a creator of wealth. A long-term outlook is required to make the most of the power of compounding. The following question is adapted from an article on page 38 in The Advertiser newspaper on Monday, February 6, 2017. A young investor starts depositing $200 per month at age 20, earning 8% per annum interest compounded monthly. She stops making deposits at age 30 and doesnt touch her money until she retires at age 65. Her first deposit is on her 20th birthday and her last deposit is on her 30th birthday. Assume that her money continues to earn 8% per annum interest compounded monthly after she stops making deposits. Her friend starts to save at age 30 and deposits $200 per month until he retires at age 65. The investment also earns 8% per annum compounded monthly. His first deposit is on his 30th birthday and his last deposit is on his 65th birthday.

1. (a)Howmuchdoeseachinvestordeposit?
2. (b) Calculate the future (FV) of each investment using a financial calculator.
3. (c) Who has the larger amount of money at retirement? Why is it important to start investing at an early age?