Question

You are age 25, and have now settled into you first job. You desire to retire at age 60, and know that you can invest $8,750 each year. You have decided to use this as your primary retirement vehicle. At the end of the year, you invest $8,750, and $8,750 per year thereafter until age 60, and realize the average return on the stock market of 11% per year. How much do you have at age 60?

Answer 1

Answer:

$2,988,908.60

Step-by-step explanation:

Since the payments are made at the end of the year, it is an Ordinary Annuity.

The future value of an ordinary annuity with deposits P made regularly k times each year for n years, with interest compounded k times per year at an annual rate r, is given as:

$F.V.=\dfrac{P[(1+i)^{kn}-1]}{i}, i=\frac{r}{k}$  

In the given case,

• The Yearly Investment, P =$8,750

The stock market's average return is 11% per year. Period, k=1, r=11%, Therefore:

• i=11%=0.11
• n=60-25=35 years

Therefore, the Future Value at 60 years of age

$F.V.=\dfrac{8750[(1+0.11)^{35}-1]}{0.11}\\=\dfrac{8750[(1.11)^{35}-1]}{0.11}\\=\ 2,988,908.60$

At retirement, I would have $2,988,908.60