Question

You've just made your first $5000 contribution to your individual retirement account. Assuming you earn an annual rate of return of 10.2% and make no additional contributions what will your

account be worse when you retire in 45 years? What if you wait ten years before contributing (does this suggest an investment strategy?

Answer 1

Amount = $5,000

Time = 45 Years

Rate = 10%

The formula to calculate the future sum is as follows -

Future Amount = Present Value * ( 1 + r ) ^ t

Future Amount = 5000 * ( 1 + 0.10 ) ^ 45

Future Amount = 5000 * 72.89

Future Amount = $364,452.42

//

Amount = $5,000

Time = 45 - 10 = 35 Years

Rate = 10%

The formula to calculate the future sum is as follows -

Future Amount = Present Value * ( 1 + r ) ^ t

Future Amount = 5000 * ( 1 + 0.10 ) ^ 35

Future Amount = 5000 * 28.102

Future Amount = $140,512.18