Question

Assume that you contribute $360 per month to a retirement plan for 15 years. Then you are able to increase the contribution to $720 per month for another 25 years. Given a 6.0 percent interest rate, what is the value of your retirement plan after the 40 years? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Answer 1

From Year 1 to Year 15,

Monthly Contribution = $360

Interest Rate = 6%

Future Value at the end of Year 15,

Using TVM calculation,

FV = [PV = 0, PMT = 360, T = 180, I = 0.06/12]

FV = $104,694.74

From Year 16 to Year 40,

Monthly Contribution = $720

Present Value = $104,694.74

Interest Rate = 6%

Time Period = 25 years

Future Value at the end of Year 40,

Using TVM calculation,

FV = [PV = 104694.74, T = 300, PMT = 720, I = 0.06/12]

FV = $966,414.33

So, Future Value at the end of Year 40 = $966,414.33

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