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Solve: Looking at Retirement Balances

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A colleague wants to know how much money she will have at retirement if she invests $25,000 in a bank account that yields six percent compounded annually.

a) List some possible retirement balances if my friend is currently 50 yrs old. (hint: some folks retire at 60 and some at 62).

b) Graph the balance on account against time and discuss the relationship in your own words.

c) I recommend changing her portfolio to bonds which compound continuously at a nominal rate of 8% per year. How much cash will she have at age 65? What plan is better and why?

A= P (1 + r)^n
N is Number of Years

A. A= 25000 (1 + .6)^10 ?. 25000 (1.6)^10 at 60 years old will have $2,748,779.07
A= 25000 (1 + .6)^12 ?. 25000 (1.6)^12 at 62 years old will have $7,036,847.4177664
A= 25000 (1 + .6)^15 ?. 25000 (1.6)^15 at 65 years old will have $28,823,037.6151711744

C. A = P e^rt
t = number of years

25,000 e^15 .08 which is 25,000 e^1.2


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Solution Summary

This solution is comprised of a detailed response, which is provided in two parts. Two pdf. files are attached, with one containing the answer to part 1 and the other to part 2. All required calculations are included.