Question

You just received $225,000 from an insurance settlement. You have decided to set this money aside and invest it for your retirement. Currently, your goal is to retire 25 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 10.5 percent rather than just 8 percent?

Answer 1

If the interest rate is 10.5% the value of the investment at the time of retirement will be $1,189,576.02 higher.

Step-by-step explanation:

To calculate the future value, we need to use the following formula:

FV= PV*(1+i)^n

When i=8%

FV= 225,000*(1.08^25)

FV= $1,540,906.92

When i=10.5%

FV= 225,000*(1.105^25)

FV= $2,730,482.95

Difference= 2,730,482.95 - 1,540,906.92= $1,189,576.02

If the interest rate is 10.5% the value of the investment at the time of retirement will be $1,189,576.02 higher.