Question

Assume that you contribute $150 per month to a retirement plan for 10 years. Then you are able to increase the contribution to $300 per month for another 10 years. Given an 8.0 percent interest rate, what is the value of your retirement plan after the 20 years?

Answer 1

This problem can be broken down to

150 / month for 20 years + 150 / month for 10 years

FV of 150 / month for 20 years

FVOrdinary Annuity = C*(((1 + i )^n -1)/i)

C = Cash flow per period

i = interest rate

n = number of payments

FV= 150*(((1+ 8/1200)^(20*12)-1)/(8/1200))

FV = 88353.06

FV of 150 / month for 10 years

FVOrdinary Annuity = C*(((1 + i )^n -1)/i)

C = Cash flow per period

i = interest rate

n = number of payments

FV= 150*(((1+ 8/1200)^(10*12)-1)/(8/1200))

FV = 27441.91

Total = 88353.06+27441.91=115794.97