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A newscaster earns $32,700 each year and wants to invest 10% of his/her monthly salary
to save for retirement in 35 years. If he/she invests this money at 3.6% compounded monthly,
how much money will he/she have at retirement?
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The monthly salary is $32700 per year, or 32700/12 = 2725 dollars per month.
10% of it is 0.1*2725 = 272.50 dollars monthly deposit.
I will assume that this person deposits $272.50 dollars at the end of each month.
Then it is a classic Ordinary Annuity saving plan. The general formula for the future value is
FV = , (1)
where P is the monthly payment (deposit);
r is the monthly percentage yield presented as a decimal;
n is the number of deposits (= the number of years multiplied by 12, in this case).
Under the given conditions, P = 272.50; r = 0.036/12 = 0.003; n = 12*35 = 420.
So, according to the formula (1), the person will get at the end of the 35-th year
FV = = $228,789. ANSWER
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On Ordinary Annuity saving plans, see the lessons
- Ordinary Annuity saving plans and geometric progressions
- Solved problems on Ordinary Annuity saving plans
in this site.
The lessons contain EVERYTHING you need to know about this subject, in clear and compact form.
When you learn from these lessons, you will be able to do similar calculations in semi-automatic mode.