Question

Right after college, you take Adam’s advice and save $100 per month. You do this for forty years. You earn a respectable 8% per year, compounded monthly. At retirement, you use all of your retirement money to purchase a boat and sail off into the sunset. What is the cost of your boat?

• 349,101

• 458,763

• 648,526

• 147,963

• 247,639

• 463,796

Answer 1

The amount is computed as shown below:

Future value = Monthly payment x [ [ (1 + r)ⁿ – 1 ] / r ]

r is computed as follows:

= 8% / 12 (Since the savings are monthly, hence divided by 12)

= 0.666666667% or 0.00666666667

n is computed as follows:

= 40 x 12 (Since the savings are monthly, hence multiplied by 12)

= 480

So, the amount will be as follows:

= $ 100 x [ [ (1 + 0.00666666667)⁴⁸⁰ - 1 ] / 0.0066666667 ]

= $ 100 x 3,491.007657

= $ 349,101 Approximately

Feel free to ask in case of any query relating to this question