Question

Your grandmother recently surprised you and gave you $15,000 expressly for the purpose of starting your retirement savings. Her only stipulation is that you have to invest the money now, and not touch any of it for the next 35 years (at which point you plan to retire). What will the value of this account be at the end of the 35 years under each of the following return assumptions (assume annual compounding)?

A. 6% per year
B. 10% per year
C. 14% per year

Answer 1

Answer:

A. $115,291.30

B. $421,536.55

C. $1,471,502.67

Explanation:

The expression that describes the final amount of a $15,000 investment compounded annually for 35 years is:

$A = \ 15,000*(1+i)^{35}$

A. 6% per year

i = 0.06

$A = \ 15,000*(1+0.06)^{35}\\A = \ 115,291.30$

B. 10% per year

i = 0.10

$A = \ 15,000*(1+0.10)^{35}\\A = \ 421,536.55$

C. 14% per year

i = 0.14

$A = \ 15,000*(1+0.14)^{35}\\A = \ 1,471,502.67$