Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Compounding Interest You know that paying yourself by depositing money in a savings account is a prudent start to your retirement plan. You determined that,

Compounding Interest

You know that paying yourself by depositing money in a savings account is a prudent start to your retirement plan. You determined that, based on your other obligations, you can save $6,875.00 per year via an annual, single year-end deposit. You are 40 years old now, so your money will grow for the next 25 years until you turn 65. You will open a savings account at the US Bank branch near your home. Its savings accounts are paying 6% interest.

The following table shows the future value factors for various periods and interest rates:

Future Value of an Annuity Factor

Year 2% 3% 5% 6% 8% 9% 10%
10 10.950 11.460 12.578 13.180 14.487 15.190 15.937
12 13.412 14.190 15.917 16.870 18.977 20.140 21.384
15 17.293 18.600 21.578 23.270 27.152 29.360 31.772
20 24.297 26.870 33.066 36.780 45.762 51.160 57.274
25 32.030 36.460 47.726 54.860 73.105 84.700 98.346
30 40.567 47.570 66.438 79.060 113.282 136.300 164.491
35 49.994 60.460 90.318 111.430 172.314 215.700 271.018
40 60.401 75.400 120.797 154.760 259.052 337.870 442.580

image text in transcribed Complete the following table by entering relevant values. Then use the table of future value factors to calculate the value of this nest egg. What will be the value of this money in 25 years? (Note: Round to two decimal places.) You began saving at age 40. If you had started five years earlier, so that your funds would grow for years, what would your nest egg be worth, assuming the same interest rate and annual savings amount? (Note: Round to two decimal places.) | Suppose that a new bank in town offers 8% interest. How much would your yearly deposits be worth if you open a savings account there, assuming that your funds are invested for 25 years and all other factors remain the same? Complete the following table by entering relevant values. Then use either the table of future value factors, the future value formula, or your financial calculator to calculate the value of this nest egg. (Hint: Remember that the FVA factor is based on the new interest rate now.) What will be the value of this money in 25 years? (Note: Round to two decimal places.) Again, if you had started your savings program five years earlier, what would your nest egg be worth, assuming that your funds were invested at this higher interest rate, the annual savings amount remains the same, and the funds are invested for years? (Note: Round to two decimal places.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Forecasting Principles And Practice

Authors: Rob J Hyndman, George Athanasopoulos

3rd Edition

0987507133, 978-0987507136

More Books

Students also viewed these Finance questions

Question

Explain the need for a critical analytical approach to studying HRM

Answered: 1 week ago