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Retirement Investment Advisors Incorporated, has just offered you an annual interest rate of 6 percent until you retire in 40 years. You believe that interest rates will increase over the next year and you would be offered 6.6 percent per year one year from today. If you plan to deposit $18,000 into the account either this year or next year, how much more will you have when you retire if you wait one year to make your deposit?Multiple Choice$32,529.54$12,219.43$22,866.08$48,043.26$49,213.56

Question

Retirement Investment Advisors Incorporated, has just offered you an annual interest rate of 6 percent until you retire in 40 years. You believe that interest rates will increase over the next year and you would be offered 6.6 percent per year one year from today. If you plan to deposit 18,000intotheaccounteitherthisyearornextyear,howmuchmorewillyouhavewhenyouretireifyouwaitoneyeartomakeyourdeposit?MultipleChoice18,000 into the account either this year or next year, how much more will you have when you retire if you wait one year to make your deposit?Multiple Choice32,529.5412,219.4312,219.4322,866.0848,043.2648,043.2649,213.56

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Solution

To solve this problem, we need to calculate the future value of the $18,000 deposit with both interest rates and then subtract the two to find the difference.

First, let's calculate the future value if you deposit the money now with an interest rate of 6 percent. The formula for future value is:

FV = PV * (1 + r)^n

where: FV = future value PV = present value (the amount of the deposit) r = interest rate n = number of years

So, if you deposit the money now, the future value would be:

FV = 18,000∗(1+0.06)40=18,000 * (1 + 0.06)^40 = 209,371.17

Next, let's calculate the future value if you wait one year and deposit the money with an interest rate of 6.6 percent. In this case, the number of years would be 39 because you're waiting one year to make the deposit. So the future value would be:

FV = 18,000∗(1+0.066)39=18,000 * (1 + 0.066)^39 = 241,590.71

Finally, subtract the future value of the deposit made now from the future value of the deposit made one year from now to find the difference:

241,590.71−241,590.71 - 209,371.17 = $32,219.54

So, if you wait one year to make your deposit, you will have 32,219.54morewhenyouretire.Theclosestanswertothisinthemultiplechoiceoptionsis32,219.54 more when you retire. The closest answer to this in the multiple choice options is 32,529.54.

This problem has been solved

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