Question

Luis has $120,000 in his retirement account at his present company. Because he is assuming a position with another company, Luis is planning to "roll over" his assets to a new account. Luis also plans to put $2000/quarter into the new account until his retirement 20 years from now. If the new account earns interest at the rate of 2.5%/year compounded quarterly, how much will Luis have in his account at the time of his retirement? Hint: Use the compound interest formula and the annuity formula. (Round your answer to the nearest cent.)

Answer 1

Sol:

Calculating Future Value,

Using TVM Calculation,

PV = 120,000,

PMT = 2,000,

N = 20 * 4 = 80quaters

I = 2.5 %/ year

= % /quater

= 0.625%/quater

FV =

= 120,000 * (1 + 0.625 %)^80

FV = 197538.93869

Component Interest = 197538.93869 - 2000

Component Interest = 195538.93869 .................. (1)

Annuity formula is

FV =

= 2000 *(1+0.625%)*{(1+0.625%)^{80} -1}/{0.625%} ]

FV = 208,062.81882 ...................... (2)

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