A couple saves $500.00 per month (end of the month) for 40.00 years. They can earn a 6.00% annual interest with monthly compounding on this account. The couple wants their retirement account to last for 25.00 years. When they retire, they will move their savings into a money market fund that pays 2.40% annual interest with monthly compounding. What is the value of this account when they retire?

Future Value = $995,745.37

Explanation:

Giving the following information:

A couple saves $500.00 per month (end of the month) for 40.00 years. They can earn a 6.00% annual interest with monthly compounding on this account.

First, we need to calculate the monthly interest rate:

i=0.06/12 = 0.005

Now, using the following formula, we can calculate the future value of the account:

FV = {A*[ (1+i) ^n-1]}/i

A = annual deposit = 500

i=0.005

n=40*12 = 480

FV = {500*[ (1.005^480) - 1]}/0.005 = $995,745.37