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Assume that you contribute $260 per month to a retirement plan for 20 years. Then you...

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Finance

Assume that you contribute $260 per month to a retirement planfor 20 years. Then you are able to increase the contribution to$520 per month for another 30 years. Given a 7.2 percent interestrate, what is the value of your retirement plan after the 50years?  

Answer & Explanation Solved by verified expert
4.0 Ratings (686 Votes)

Value of plan after 50 years is $ 18,55,620.43

We can also say that question says that $ 260 per month is contributed for 50 years and additional $ 260 per month for next 30 years.
Step-1:Future value of $ 260 monthly contribution for 50 years
Future value = Monthly contribution * Future value of annuity of 1
= $              260.00 * 5867.776224
= $ 15,25,621.82
Working:
Future value of annuity of 1 = (((1+i)^n)-1)/i Where,
= (((1+0.006)^600)-1)/0.006 i = 7.2%/12 = 0.006
= 5867.776224 n = 50*12 = 600
Step-2:Future value of $ 260 monthly contribution for 30 years
Future value = Monthly contribution * Future value of annuity of 1
= $              260.00 * 1269.225442
= $    3,29,998.61
Working:
Future value of annuity of 1 = (((1+i)^n)-1)/i Where,
= (((1+0.006)^360)-1)/0.006 i = 7.2%/12 = 0.006
= 1269.225442 n = 30*12 = 360
Step-3:Calculation of future value after the 50 years
Future value after 50 years = $ 15,25,621.82 + $ 3,29,998.61
= $ 18,55,620.43
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