Question

You didn't plan your tax withholding very well and received a refund of $5,000. Since your budget is set and you have your emergency fund up-to-date, you decide open a retirement account with the money. You know you won't be able to access the money until you are 60 years old and plan to leave the money alone until you are 65. Since you are 25 right now, find what the value of your $5,000 would be when you reach

Answer 1

The future value of a $5,000 investment over 40 years cannot be calculated without an annual interest rate. Nevertheless, due to compound interest, your investment could experience substantial growth over such an extended period.

Step-by-step explanation:

The question asked concerns the future value of a $5,000 investment made today, which will not be accessed for 40 years, assuming you are currently 25 years old and plan to access the funds at age 65. To calculate this, we would typically use the formula for compound interest, which is A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount ($5,000), r is the annual interest rate (assumed but not provided in the question), n is the number of times that interest is compounded per year, and t is the time the money is invested for.

However, because an interest rate was not provided in the question, we cannot calculate an exact future value for your investment. Nonetheless, the power of compound interest over time means that your initial investment has the potential to grow significantly, especially over such a long period as 40 years. The impact of compound interest is far greater than that of simple interest due to the fact it allows for the interest to accumulate on the reinvested interest over time, leading to exponential growth of your investment.