You have just made your first $5,900 contribution to your retirement account. Assume you earn a return of 11 percent per year and make no additional contributions. What will your account be worth when you retire in 36 years? future value $ what if you wait 10 years before contributing?

Question

Tyree Sutton

Business

6 July, 21:36

You have just made your first $5,900 contribution to your retirement account. Assume you earn a return of 11 percent per year and make no additional contributions. What will your account be worth when you retire in 36 years? future value $ what if you wait 10 years before contributing?

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Answers (1)

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Danna · Answer 1

A. The future value of $5,900 invested over 36 years will be $252,626.70

B. The Present Value of $5,900 un-invested until after 10 years, would have depleted the Value to $2,077.89

Then investing this $2,077.89 for the next 26 years will take the Future Value of our investment to $31,334.285

Explanation:

A. Using Future Value computation which states that

FV = Present Value x (1 + interest) ^no of years

Based on Question

FV = $5,900 x (1 + 11%) ^36 years

= $252,626.70

B. If the contribution is delayed by 10 years,

The formula remains the same only that the variables would have changed.

n = 26 years

PV = $5,900 discounted with the interest rate as at Year 10.

= 5,900 x (1 + 11%) ^-10

= $2,077.889

For not investing the $5,900 now, the value would have depleted to $2,077 by the 10th year

Now let's include this information in the Future Values computation

= $2077.889 x (1 + 11%) ^26

= $31,334.285