Question

You begin working at age 25, and your employer deposits $240 each month into a retirement account that pays an APR of 7.1% compounded monthly. You expect to retire at age 65. What will be the size of your nest egg when youretire?

Answer 1

To calculate the size of your nest egg when you retire, you can use the formula for compound interest. In this case, you are depositing $240 each month into a retirement account that pays an APR of 7.1% compounded monthly. Use the formula FV = P * (1 + r)^n, where FV is the future value, P is the monthly deposit, r is the monthly interest rate, and n is the number of months to calculate the size of your nest egg.

Step-by-step explanation:

To calculate the size of your nest egg when you retire, you can use the formula for compound interest. In this case, you are depositing $240 each month into a retirement account that pays an APR of 7.1% compounded monthly. Let's break it down:

1. First, convert the APR to a monthly interest rate. Divide 7.1% by 12 to get 0.5917%.
2. Next, convert the monthly interest rate to a decimal. Divide 0.5917% by 100 to get 0.005917.
3. Now, calculate the number of months you will be saving for retirement. Multiply the number of years (40 years, from age 25 to 65) by 12 to get 480 months.
4. Finally, use the formula for compound interest:
   FV = P * (1 + r)^n
   where FV is the future value or the size of your nest egg, P is the monthly deposit ($240), r is the monthly interest rate (0.005917), and n is the number of months (480).
   Plugging in the values, you get:
   FV = 240 * (1 + 0.005917)^480
   Calculating this equation will give you the size of your nest egg when you retire.

Make sure to check your work and calculations to ensure accuracy.