Answer to Question #227097 in Economics of Enterprise for Bahjt

Question

 You decided to put away 5%

 of your annual salary for

 retirement. Your annual

 salary is $20,000 for the first

 year (at age 22) and it

 increases by 3% every year

 until your retirement (at age

 50). What will be the worth of

 your account when you retire

 if the interest is 4.5% per

 year?

Answer 1

We use the formula below:

$A=P(1+\frac {r}{n})^{nt}$

$P= \frac {5}{100}\times 20,000=1,000$

$r=4.5$ %

$t=50-22=28$

$n=0.03$

$A= 1,000(1+\frac {4.5}{0.03})^{2.52}$

$A=309,757,554.67$