A couple saves $500.00 per month (end of month) for 40.00 years. They can earn 6.00% annual interest with monthly compounding on this account. The couple wants their retirement account to last for 25.00 years. When they retire, they will move their savings into a money market fund that pays 2.40% annual interest with monthly compounding. What is the value of this account when they retire?
| FV of annuity | = | P * [ (1+r)^n -1 ]/ r | |
| Periodic payment | P= | 500 | |
| rate of interest per period | r= | ||
| Rate of interest per year | 6% | ||
| Payment frequency | Once in 1 months | ||
| Number of payments in a year | 12.00 | ||
| rate of interest per period | 0.06*1/12 | 0.50% | |
| Number of periods | |||
| Number of years | 40 | ||
| Number of payments in a year | 12 | ||
| Total number of periods | n= | 480 | |
| FV of annuity | = | 500* [ (1+0.005)^480 -1]/0.005 | |
| FV of annuity | = | 9,95,745.37 | |
Amount in their account on retirement=
| 9,95,745.37 |
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