Question

Isaiah is in his 50s and currently does not have a retirement fund. However, he recently read a few articles about the insufficient savings of people in retirement and, as a result, he decides he wants to start now. He saves $500 per month for 15 years and earns 7% by investing in the stock market* through an index fund.

1. How much of the total did Isaiah contribute himself?

2. How much money did Isaiah make through compounded returns in this investment account?

Answer 1

1255

Step-by-step explanation:

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Answer 2

Isaiah contributed a total of $90,000 himself by saving $500 per month for 15 years.

Isaiah made a total of $166,405.21 through compounded returns in this investment account.

How is that so?

Total amount contributed by Isaiah:

Monthly contribution: $500

Years of contribution: 15 years

Total contribution = monthly contribution * 12 months/year * years of contribution

Total contribution = $500/month * 12 months/year * 15 years

Total contribution = $90,000

Compounded returns:

We can use the compound interest formula to calculate the compounded returns:

`A = P * (1 + r/n)^(nt)`

where:

• A is the final amount
• P is the principal amount (total contribution)
• r is the annual interest rate (7%)
• n is the number of times compounded per year (12 for monthly)
• t is the number of years (15)

In this case, we have:

P = $90,000

r = 7%

n = 12

t = 15

Therefore, the final amount is:

`A = $90,000 * (1 + 0.07/12)^(12 * 15) = $256,405.21`

The compounded returns are the difference between the final amount and the total contribution:

Compounded returns = A - P = $256,405.21 - $90,000 = $166,405.21