Question

You just received $25,000 from an insurance settlement and have decided to invest it for your retirement. Currently, your goal is to retire 40 years from today. How much more will you have in your account on the day you retire if you can earn an average return of 8.2 percent rather than just 8 percent?

Answer 1

Answer: $41,718.03

Step-by-step explanation:

Calculation of maturity value at 8% Return:

As per Compound interest Formula

Maturity Value
`=P(1+r)^(n)`

where,

P = Principal Amount = $25,000

r = Rate of Interest = 8% or 0.08

n = No of years = 40 Years

Maturity Value
`=25,000(1+0.08)^(40)`

= $543,113.04

Calculation of maturity value at 8.2% Return:

As per Compound interest Formula

Maturity Value
`=P(1+r)^(n)`

where,

P = Principal Amount = $25,000

r = Rate of Interest = 8.2% or 0.082

n = No of years = 40 Years

Maturity Value
`=25,000(1+0.082)^(40)`

= $584,831.07

The extra amount can be earned at 8.2 percent rather than just 8 percent:

= $584,831.07 - $543,113.04

= $41,718.03

Therefore, $41,718.03 can be earned extra at 8.2 percent rather than just 8 percent