Question
Mitch and Bill are both age 75. When Mitch was 23 years old, he began depositing $1400 per year into a savings account. He made
Mitch and Bill are both age 75. When Mitch was 23 years old, he began depositing $1400 per year into a savings account. He made deposits for the first 10 years, at which point he was forced to stop making deposits. However, he left his money in the account, where it continued to earn interest for the next 42 years. Bill didn't start saving until he was 47 years old, but for the next 28 years he made annual deposits of $1400. Assume that both accounts earned an average annual return of
6% (compounded once a year).
a. How much money does Mitch have in his account at age 75?
b. How much money does Bill have in his account at age 75?
c. Compare the amounts of money that Mitch and Bill deposit into their accounts.
d. Draw a conclusion about this parable. Choose the correct answer below.
- Both Bill and Mitch have the same return on their investments despite using different methods of saving.
- Mitch ends up with more money in his account despite not having deposited as much money as Bill because the interest that is initially accumulated accrues interest throughout the life of the account.
- Both Bill and Mitch end with the same amount of money in their accounts, but Mitch had to deposit less money using his method. It is better to start saving as early as possible.
- Bill ends up with more money in his account than Mitch because he make more deposits than Mitch, and each additional deposit will accrue interest each year.
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