Marisa Gale, a 25-year-old personal loan officer at Second National Bank, understands the importance of starting early when it comes to saving for retirement. She has designated $3,000 per year for her retirement fund and assumes she'll retire at age 65.
How much will she have if she invests in CDs and similar money
market instruments that earn 6 percent on average?
How much will she have if instead she invests in equities and earns 8 percent on average? Round your answer to the nearest dollar.
Marisa is urging her friend, Nolan Ransom, to start his plan right away because he's 40. What would his nest egg amount to if he invested in the same manner as Marisa and he, too, retires at age 65? Round your answer to the nearest dollar.
Nest egg amount at 6% =3000/6%*(1.06^25-1)=164593.536
Nest egg amount at 8% =3000/8%*(1.08^25-1)=219317.8199
Comment on your findings.
Higher the rate, higher is the accumulated value.
The earlier one starts, the higher the accumulated amount is due to the power of compounding.
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