Question

Retirement Investment Advisors, Inc., has just offered you an annual interest rate of 4.6 percent until you retire in 35 years. You believe that interest rates will increase over the next year and you would be offered 5.2 percent per year one year from today. If you plan to deposit $14,000 into the account either this year or next year, how much more will you have when you retire if you wait one year to make your deposit?

Answer 1

Difference= $10,895.32 in favor of option 2.

Step-by-step explanation:

Giving the following information:

Option 1:

Annual interest rate of 4.6 percent until you retire in 35 years.

Initial investment= $14,000

Option 2:

Annual interest rate of 5.2 percent until you retire in 34 years.

Initial investment= $14,000

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

FV= PV*(1+i)^n

Option 1:

FV= 14,000*1.046^35= $67,567.37

Option 2:

FV= 14,000*1.052^34= $78,462.69

Difference= 78,462.69 - 67,567.37= $10,895.32 in favor of option 2.