Question

10. You invest $10,000 today into a retirement account. You expect to earn 12 percent, compounded
monthly, on your money for the next 25 years. After that, you expect to earn only 8 percent, compounded
semi-annually. How much money will you have in your account when you retire 40 years from now?

Answer 1

Answer to the question:

Initial Investment = $10000
Expected return 12% p.a. for next 25 years, compounded monthly
Expected return per month = 1%
Expected return 8% p.a. for rest years
Expected return per month = 0.6666 %

For calculating how much money is there in account after 40 years, first we have to calculte value after 25 years and then we calculate value after 40 years

Value after 25 years = $10000 * (1.01)300
=$10000 * 19.78846
= 197884.60

Value after 40 years = 197884.60*(1.06666)180
= 197884.60 * 3.30692
=$654388.54

Hence we recieve 654388.54 after 40 years