Question

On your 30th birthday your employer SWFC Corporation, has invited you to join their pension scheme. You are paid $60,000 per year, and at the end of each year the company contributes an additional 10% of your salary to the scheme. Required:

(i) How much money will be in your fund at age 60 (your projected retirement age), if the fund expects to earn an average rate of 11% p.a.?

Answer 1

Here I am assuming that you are conributing 10% and your employer is paying 10% of your salary to pension fund. Now all the payments are done at the end of year i.e $6,000 + $6,000 every year end is paid.

Now formula for Future Value of Annuity is given by:

P = $12,000

r =11%

N = 30

FV = 12,000[((1+0.11)^30 -1)/0.11]

= 12000 * (21.8922965719/0.11)

= 2,388,250.535117608

= $2,388,250.54