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Retirement planning Personal Finance Problem Hal Thomas, a 3 5 - year - old college graduate, wishes to retire at age 6 0 . To

Retirement planning Personal Finance Problem Hal Thomas, a 35-year-old college graduate, wishes to retire at age 60. To supplement other sources of retirement income, he can deposit
$2,500 each year into a tax-deferred individual retirement arrangement (IRA). The IRA will earn a return of 14% over the next 25 years.
a. If Hal makes end-of-year $2,500 deposits into the IRA, how much will he have accumulated in 25 years when he turns 60?
b. If Hal decides to wait until age 45 to begin making end-of-year $2,500 deposits into the IRA, how much will he have accumulated when he retires 15 years later?
c. Using your findings in parts a and b, discuss the impact of delaying deposits into the IRA for 10 years (age 35 to age 45) on the amount accumulated by the end of Hal's 60 th year.
d. Rework parts a,b, and c assuming that Hal makes all deposits at the beginning, rather than the end, of each year. Discuss the effect of beginning-of-year deposits on the future value
accumulated by the end of Hal's 60th year.
a. If Hal makes annual end-of-year $2,500 deposits into the IRA, the amount he will have accumulated by the end of his 60 th year is $.(Round to the nearest cent.)
b. If Hal decides to wait until age 45 to begin making annual end-of-year $2,500 deposits into the IRA, the amount he will have accumulated by the end of 60 th year is $
(Round to the
nearest cent.)
c. Using your findings in parts a and b, which of the following options better describes the impact of delaying making deposits into the IRA for 10 years (age 35 to age 45) on the amount
accumulated by the end of Hal's 60th year? (Select the best answer below.)
By delaying the deposits by 10 years, Hal is incurring a significant opportunity cost. This cost is due to both the lost deposits of .) and the lost compounding of interest
on all of the money for 10 years.
By delaying the deposits by 10 years, Hal earns a large capital gain. This gain is due to both the saved deposits of $25,000( $2,50010 yrs.) and the gained compounding of interest on all
of the money not deposited for 10 years.
d. If Hal makes annual beginning-of-year $2,500 deposits into the IRA, the amount he will have accumulated by the end of his 60th year is $ (Round to the nearest cent.)
If Hal decides to wait until age 45 to begin making annual beginning-of-year $2,500 deposits into the IRA, the amount he will have accumulated by the end of his 60 th year is $
(Round to the
nearest cent.)
Both deposits (increased/decreased) due to the extra year of compounding from the beginning-of-year deposits instead of the end-of-year deposits. The incremental change in the (25-year/15-year) annuity is much
larger than the incremental compounding on the (25-year/15-year) deposit due to the larger sum on which the last year of compounding occurs.
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