Question

Sandra is going to contribute $560 on the first of each month, starting one month from today, to her retirement account. Her employer will provide a 50 percent match. In other words, her employer will add $280 to the amount Sandra saves. If both Sandra and her employer continue to do this and she can earn a rate of 9.0 percent, how much will she have in her retirement account 30 years from today?

	A.	$1,215,382
	B.	$1,537,825
	C.	$761,172
	D.	$961,737
	E.	$1,888,222

Answer 1

We can use the future value of annuity formula to calculate the total savings in retirement account 30 years from today.
Future value of annuity = P x {[(1+r)^n -1]/r}
Future value of annuity = total savings in retirement account 30 years from today = ?
P = monthly savings = $560 + $280 = $840
r = rate of interest per month = 9%/12 = 0.0075
n = number of months = 30 years x 12 = 360
Future value of annuity = 840 x {[(1+0.0075)^360 -1]/0.0075}
Future value of annuity = 840 x 1830.743
Future value of annuity = 1537824.53
She will save $15,37,825 in her retirement account 30 years from today.
The answer is Option B.