CASE STUDIES 13-1How Fast Does Your Money Grow?

Barry learned in an online investment course that he should start investing as soon as possible. He had always thought that it would be smart to start investing after he finishes college and when his salary is high enough to pay the bills and to have money left over. He projects that will be 510 years from now. Barry wants to compare the difference between investing now and investing later. A financial advisor who spoke to Barry suggested that a Roth IRA (Individual Retirement Account) would be a good investment for him to start.

(Note: When table values do not include the information you need, use the formulaFV= $1(1 +R)NwhereRis the period rate andNis the number of periods.)

• 1.If Barry purchases a $2,000 Roth IRA when he is 25 years old and expects to earn an average of 6% per year compounded annually over 35 years (until he is 60), how much will accumulate in the investment?
• 2.If Barry doesnt put the money in the IRA until he is 35 years old, how much money will accumulate in the account by the time he is 60 years old using the same return of 6%? How much less will he earn because he invested 10 years later?
• 3.Barry knows that the interest rate is critical to the speed at which your investment grows. For instance, if $1 is invested at 2% compounded annually, it takes approximately 34.9 years to double. If $1 is invested at 5% compounded annually, it takes approximately 14.2 years to double. UseTable 13-1to determine how many years it takes $1 to double if invested at 10% compounded annually; at 12% compounded annually.
• 4.At what interest rate would you need to invest to have your money double in 10 years if it is compounded annually?