Ask Question
13 November, 07:12

Calculate the future value of an account after you've contributed $1 comma 050 at the end of each year for 40 years assuming you can earn 6.00 percent compounded annually, and that you don't make a withdrawal during the 40-year period. Now calculate the value of the same account if you stop making contributions after 30 years. What does this tell you about the power of time when trying to accumulate wealth?

+5
Answers (1)
  1. 13 November, 07:22
    0
    Case 1. $354,776

    Case 2. $143,122

    This shows that investment would loose its value by $211,654.

    Explanation:

    As we know that:

    Future Value = PMT / Annuity Factor (Step 1)

    The periodic payments are represented as PMT which is $1,050.

    Step 1:

    And as we know:

    Annuity Factor = ((1 + r) ^n - 1) / r

    Here,

    r is the rate of return which is 9%.

    Case 1: So for n=30 years:

    Annuity Factor = ((1 + 9%) ^30 years - 1) / 9% = 136.307

    By putting value in the first equation, we have:

    FV at 40 years of consistent periodic payments = $1050 * 337.882

    = $354,776

    Case 2: So for n=40 years:

    Annuity Factor = ((1 + 9%) ^40 years - 1) / 9% = 337.882

    By putting value in the first equation, we have:

    FV at 30 years of consistent periodic payments = $1050 * 136.307

    = $143,122

    The difference between the two scenarios is $211,654, which means the invesmtnet will loose its value by this amount.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Calculate the future value of an account after you've contributed $1 comma 050 at the end of each year for 40 years assuming you can earn ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers