SOLUTION: Since he was 21 years old, Ben has been depositing $200 at the end of each month into a tax-free retirement account earning interest at the rate of 3.5%/year compounded monthly. La
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Question 916846: Since he was 21 years old, Ben has been depositing $200 at the end of each month into a tax-free retirement account earning interest at the rate of 3.5%/year compounded monthly. Larry, who is the same age as Ben, decided to open a tax-free retirement account 5 years after Ben opened his. If Larry's account earns interest at the same rate as Ben's, determine how much Larry should deposit each month into his account so that both men will have the same amount of money in their accounts at age 65. (Round your answer to the nearest cent.) Answer by Theo(13342) (Show Source):
You can put this solution on YOUR website! ben started investing when he reached 21 and he stopped investing when he reached 65.
larry started investing when he was 26 and he stopped investing when he reached 65.
since they were both the same age, then they stopped at the same time.
ben was investing for 44 years and larry was investing for 39 years.
you first have to determine what the future value of the payments that ben made is.
i entered a present value of 0 and a future value of 0 and a payment of $200 and an interest rate of .291667 (3.5 / 12 = .291667) and a number of time periods of 528 (44 * 12 = 528) and i then selected fv and the calculator told me that the future value of the investment was $250,750.31.
i then changed the number of time periods to 468 (39 * 12 = 468) and then selected pmt and the calculator told me that the payment amount for the investment was $251.32
the following pictures show you what the calculator inputs and outputs look like.
the folowing pictures show you what the monthly cash flows look like.
the first picture is when ben starts investing.
the second picture is when larry starts investing.
the third picture is when ben and larry stop investing.
