Question

5. A recent college graduate hopes to have $200,000 saved in their retirement account 25 years from now by contributing $150 per month in a 401(k) plan. The goal is to earn 10% annually on the monthly contribution. Will they have the $200,000 at the end of the 25 years?

Answer 1

Answer: No

Explanation:

To determine whether the college graduate will have $200,000 saved in their retirement account after 25 years, we can use the formula for compound interest:

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

where A is the total amount of money in the account after the specified time, P is the initial amount of money deposited in the account, r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the number of years the money is invested.

In this case, the initial amount deposited each month is $150, the annual interest rate is 10%, the number of times the interest is compounded per year is 12 (once per month), and the number of years the money is invested is 25. Plugging these values into the formula above gives us:

A = $150 * (1 + 10%/12)^(12*25) = $150 * (1.0083)^300 = $150 * 3.4955 = $524.33

Since the goal is to have $200,000 saved in the account after 25 years, the college graduate will not have enough money in their account if they contribute $150 per month at 10% interest. In order to reach their goal, they would need to save more money each month or earn a higher interest rate on their contributions.