When he was 40 Keefer began investing $150 per month in various securities for his retirement savings. His investments averaged a 4.5% annual rate of return until he retired at age 70. What was the value of Keefer's retirement savings when he retired? Assume monthly compounding of interest.

Question

Christina Benjamin

Mathematics

15 November, 03:04

When he was 40 Keefer began investing $150 per month in various securities for his retirement savings. His investments averaged a 4.5% annual rate of return until he retired at age 70. What was the value of Keefer's retirement savings when he retired? Assume monthly compounding of interest.

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Cecelia Frost · Answer 1

At retirement, Keefer will have saved for 30 (that is, 70-40) years.

Monthly saving, P = $150, Annual rate of return, R = 4.5% = 0.045.

Therefore, future value (FV) at the time of retirement will be;

FV = P*[1 + (R/12) ^12*30] / (R/12)

Substituting all the parameters;

FV = 150*[1 + (1+0.045/12) ^360] / (0.045/12) = $113.907.92