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    Retirement-Planning Investments

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    P3-4. Dixon Shuttleworth has been offered the choice of three retirement-planning investments. The first investment offers a 5 percent return for the first 5 years, a 10 percent return for the next 5 years, and a 20 percent return thereafter. The second investment offers 10 percent for the first 10 years and 15 percent thereafter. The third investment offers a constant 12 percent rate of return. Determine, for each of the given number of years, which of these investments is the best for Dixon if he plans to make one payment today into one of these funds and plans to retire in the following number of years.

    a. 15 years
    b. 20 years
    c. 30 years

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    Solution Preview

    . Investment # 1: Future Value Factor = (1.05)5 × (1.10)5 x (1.20)5 = 5.115
    Investment # 2: Future Value Factor = (1.10)10 × (1.15)5 = 5.217
    Investment # 3: Future Value Factor = ...

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