Question

4. Future Value At age 20 you invest $1,700 that earns 8.75 percent each year. At age 30 you invest $1,700 that earns 11.75 percent per year. In which case would you have more money at age 60?

Both yield the same amount at age 60.

At age 20 invest $1,700 at 8.75 percent.

At age 30 invest $1,700 at 11.75 percent.

There is not enough information to determine which case earns the most money at age 60.

Answer 1

Answer : Correct Option is At age 20 invest $1,700 at 8.75 percent.

Explanation :

Calculation of Future Value at Age 60 if investing at Age 20

Using FV function of Excel :

=FV(rate,nper,pmt,pv)

where rate is the rate of Interest i.e 8.75%

nper is the number of years i.e 40 (60 - 20)

pmt is the periodic payment i.e 0

pv is the amount invested i.e 1700

=FV(8.75%,40,0,-1700)

Future value is 48710.16

Calculation of Future Value at Age 60 if investing at Age 30

Using FV function of Excel :

=FV(rate,nper,pmt,pv)

where rate is the rate of Interest i.e 11.75%

nper is the number of years i.e 30 (60 - 30)

pmt is the periodic payment i.e 0

pv is the amount invested i.e 1700

=FV(11.75%,30,0,-1700)

Future value is $47629.37