I am 28 years old and plan on retiring at age 65. I spend $4 each day on my favorite coffee like beverage at Starbucks. If I forego my daily Starbucks and can instead invest my money at a return rate of 10%, how much extra money will I have at the time of my retirement?
The $4 saved daily is an annuity. The daily interest is | |
0.10/365. The number of years for savings is 37 and the | |
number of days is 37*365 = 13505 days. FV of the annutiy | |
with daily compounding is to be found out. | |
FV of the annuity at t13505 [Extra money at the time of | |
retirement], using the formula for finding FV of annuity | |
=4*((1+0.10/365)^13505-1)/(0.10/365) = | $ 575,631.46 |
Note: | |
It is assumed that the savings are made at the end of each day. | |
That is, it is an ordinary annuity. | |
If the savings are made at the beginning of each day, it would | |
be an annuity due and the total amount on retirrement would be: | |
=4*((1+0.10/365)^13505-1)*(1+0.10/365)/(0.10/365) = | $ 575,789.17 |
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