Question

You are planning for retirement 36 years from now. You plan to invest $3,500 per year...

You are planning for retirement 36 years from now. You plan to invest $3,500 per year for the first 7 years, $7,500 per year for the next 10 years, and $14,500 per year for the following 19 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 11.0%, what will your retirement investment be worth 36 years from now?

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Answer #1

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value  
r=rate of interest  
n=time period.

A=3500*(1.11)^35+3500*(1.11)^34+3500*(1.11)^33+3500*(1.11)^32+3500*(1.11)^31+3500*(1.11)^30+3500*(1.11)^29+7500*(1.11)^28+7500*(1.11)^27+7500*(1.11)^26+7500*(1.11)^25+7500*(1.11)^24+7500*(1.11)^23+7500*(1.11)^22+7500*(1.11)^21+7500*(1.11)^20+7500*(1.11)^19+14500*(1.11)^18+14500*(1.11)^17+14500*(1.11)^16+14500*(1.11)^15+14500*(1.11)^14+14500*(1.11)^13+14500*(1.11)^12+14500*(1.11)^11+14500*(1.11)^10+14500*(1.11)^9+14500*(1.11)^8+14500*(1.11)^7+14500*(1.11)^6+14500*(1.11)^5+14500*(1.11)^4+14500*(1.11)^3+14500*(1.11)^2+14500*(1.11)+14500

=$2442740.59(Approx)

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