Question

Invest now or later? Twins Serene and Claire are both age 22. Beginning at age 22, Serene invests $2,700 per year for ten years and then never contributes another penny. Claire waits ten years and then invests $2,700 per year for the next 35 years. Assuming they both earn 9.6 percent, how much will each twin have at age 67 years? (15 points)

Answer 1

serene

FV at end of 10 year

FVAnnuity Due = c*(((1+ i)^n - 1)/i)*(1 + i )

C = Cash flow per period

i = interest rate

n = number of payments

FV= 2700*(((1+ 9.6/100)^10-1)/(9.6/100))*(1+9.6/100)

FV = 46266.88

remaining year at end of 10 years = 67-22-10=35

value at age 67

Future value = present value*(1+ rate)^time

Future value = 46266.88*(1+0.096)^35

Future value = 1144562.75

claire

FVAnnuity Due = c*(((1+ i)^n - 1)/i)*(1 + i )

C = Cash flow per period

i = interest rate

n = number of payments

FV= 2700*(((1+ 9.6/100)^35-1)/(9.6/100))*(1+9.6/100)

FV = 731732.3