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Difference in savings

36. Last year, you deposit $25,000 into a retirement savings account at a fixed rate of 7.5 %. Today, you could earn a fixed rate of 8% on a similar type account. However, your rate is fixed and cannot be adjusted. How much less could you have deposited last year if you could have earned a fixed rate of 8% and still have the same amount as you currently will when you retire 40 years from today?

Solution Preview

We first calculate the amount at the end of 40 years with a rate of 7.5%
We use the FVIF table to get the FV ...

Solution Summary

The solution explains the difference in amount that needs to be saved given an increase in interest rate