Question

Travis invests $5,500 today into a retirement account. He expects to earn 9.2 percent, compounded annually, on his money for the next 13 years. After that, he wants to be more conservative, so only expects to earn 6 percent, compounded annually. How much money will he have in his account when he retires 25 years from now, assuming this is the only deposit he makes into the account?

Answer 1

Answer:

$34,747.80

Explanation:

This 25 years investment will be conducted in two parts:

A) $5,500 invested at 9.2% rate compounded annually for 13 years. The future value of this part is:

$FV = 5,500*(1+0.092)^{13}\\FV=\ 17,268.59$

B) $17,268.59 invested at 6.0% rate compounded annually for 12 years. The future value of the total investment is:

$FV =17,268.59*(1+0.06)^{12}\\FV=\ 34,747.80$

Travis will have $34,747.80 on his account when he retires.