Problem 4

a. When John is 25 years old he starts making a $250 a month contribution into an IRA for 10 years. He then discontinues the contributions and allows the account to accumulate interest for the next 30 years. Find the total amount that john accumulates assuming that the sinking fund and the account both earn interest at 8% compounded monthly. Write your answer in sentence form within a Text Box.

b. Jane plans to make monthly contributions into an IRA for 30 years beginning at age 35. Assume her account earns interest at a 8% annual rate compounded monthly. Find the amount that Jane must contribute monthly in order to accumulate the same total amount that John will obtain. In a sentence or two give your answer and tell how you found it. Support your conclusion with a template that shows the calculations. Use the EXCEL Solver to find Jane's monthly contribution.

c. Write a short paragraph in a Text Box that contrasts the investment strategies of John and Jane. For example, compare the differences in contributions with the differences in total accumulation. Which strategy would you recommend? Why?