At age 21 Julio begins saving
At age 21 Julio begins saving $750 each year until age 35 (15payments) in an ordinary annuity paying 6.5% annual interestcompounded yearly and then leaves his money in the account untilage 65 (30 years). His friend Max begins at age 41 saving $1,500per year in the same type of account until age 65 (25 payments).How much does each have in his account at age 65?
Answer:
Julio
Information provided:
Annual saving= $750
Time= 15 years
Interest rate= 6.5%
Ordinary annuity refers to anannuity that occurs at the end of the period.
The question is solved bycalculating the future value.
Enter the below in a financialcalculator to compute the future value:
PMT= 750
N= 15
I/Y= 6.5
Press the CPT key and FV to computethe future value.
The value obtained is18,136.63.
The amount saved by Julio till age35 is $18,136.63.
The amount saved by Julio till age 65 is calculated by entering the below in a financialcalculator:
PV=-18,136.63
N= 30
I/Y= 6.5
Press the CPT key and FV to computethe future value.
The value obtained is119,962.31.
The amount saved by Julio till age65 is $119,962.31.
Max
Information provided:
Annual saving= $1,500
Time= 25 years
Interest rate= 6.5%
The amount saved by Julio till age 65 is calculated by entering the below in a financialcalculator:
PMT= 1,500
N= 25
I/Y= 6.5
Press the CPT key and FV to computethe future value.
The value obtained is88,331.52.
The amount saved by Max till age 65is $88,331.52.
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