You have just made your first $5,800 contribution to your retirement account. Assume you earn a return of 12 percent per year and make no additional contributions.

You have just made your first $5,800 contribution to your retirement account. Assume you earn a return of 12 percent per year and make no additional contributions.

  

What will your account be worth when you retire in 37 years? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

   

Future value

$

  

What if you wait 10 years before contributing? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

  

Future value

$

 

Explanation:

The time line is:

0		37
$5,800		FV

To find the FV of a lump sum, we use:

FV = PV(1 + r)t

FV = $5,800(1.12)37

FV = $384,144.69

  

And the time line for the shorter period is:

0		27
$5,800		FV

So, the FV is:

FV = PV(1 + r)t

FV = $5,800(1.12)27

FV = $123,684.31

Calculator Solution:

Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation.

 

Enter

37

12%

±$5,800

N

I/Y

PV

PMT

FV

Solve for

$384,144.69

 

Enter

27

12%

±$5,800

N

I/Y

PV

PMT

FV

Solve for

$123,684.31