Question

You are planning for retirement 35 years from now. You plan to invest $5,300 per year for the first 8 years, $6,800 per year for the next 9 years, and $13,600 per year for the following 18 years (assume all cash flows occur at the end of each year). If you believe you will earn an effective annual rate of return of 10.3%, what will your retirement investment be worth 35 years from now?

Answer 1

Hi,

We will use future investment formula to find out future value here.

Here Y1-Y8 cash flow = $5,300

Y9-17 cash flow = $6,800

Y18-Y35 cash flow = $13,600

Now future value = (Y1-Y8 cash flow)*(1+r)^t+ (Y9-Y17 cash flow)*(1+r)^t + (Y18-Y35)*(1+r)^t

Future value = 5300*(1+10.3%)^1+5300*(1+10.3%)^2+......5300*(1+10.3%)^8 +6800*(1+10.3%)^9+6800*(1+10.3%)^10+.....6800*(1+10.3%)^17 +13600*(1+10.3%)^18 + 13600*(1+10.3%)^19+......1366*(1+10.3%)^35

Value after 35 years = $4, 024,698.50

Thanks