Question

Consider Donald and Joe who are both 30- years of age and recently graduated with a degree in Finance. Both Donald and Joe plan to retire at age 67, and the retirement plan pays a 12 percent per annum return and is also compounded monthly. Donald plans to invest $1,000 per month beginning next month into his retirement account, while Joe shall invest $2,000 per month. Joe however does not plan to begin investing until 10 years after Donald begins to invest. How much will each of the newly grads have at retirement?

Answer 1

$Future Value of Annuity = P \times \frac {(1+r)n-1} {r}$

For Donald

P= $1000

r= 12/12= 1%

n= $37\times 12=$ 444

Therefore for Donald Future Value= $8,192,586

For Joe

P= $2000

r= 12/12= 1%

n= $27\times 12= 324$

Therefore for Joe Future Value= $4,825,220