Question

1. Assuming you are 30yrs and ready to retire at age 60yrs, you invest $1000 at the end of each month at the rate 8%

(a) How much will you have at age 60yrs

2. Assuming you are 35yrs and ready to retire at age 60yrs, you invest $1000 at the end of month at the rate 8%.

(a) How much will you have at age 60yrs

3. What is the percentage difference between the two assumptions?

Answer 1

1(a) Interest Rate = 8% or 0.08/12 monthly

Number of periods = n = 30*12 = 360 months

Investment Amount per month = P = $1000

FV at age 60 = P[(1+r)ⁿ -1]/r = 1000((1+0.08/12)³⁶⁰-1)/(0.08/12) = $1490359.45

2(a) Interest Rate = 8% or 0.08/12 monthly

Number of periods = n = 25*12 = 300 months

Investment Amount per month = P = $1000

FV at age 60 = P[(1+r)ⁿ -1]/r = 1000((1+0.08/12)³⁰⁰-1)/(0.08/12) = $951026.39

3. Percentage Difference = (1490359.45 - 951026.39)/1490359.45 *100% = 36.19%