Hal Thomas, a 25-year-old college graduate, wishes to retire at age 65. To supplement other sources of
Question:
Hal Thomas, a 25-year-old college graduate, wishes to retire at age 65. To supplement other sources of retirement income, he can deposit $2,000 each year into a tax-deferred individual retirement arrangement (IRA). The IRA will earn a 10% return over the next 40 years.
a. If Hal makes annual end-of-year $2,000 deposits into the IRA, how much will he have accumulated by the end of his sixty-fifth year?
b. If Hal decides to wait until age 35 to begin making annual end-of-year $2,000 deposits into the IRA, how much will he have accumulated by the end of his sixty-fifth year?
c. Using your findings in parts a and b, discuss the impact of delaying making deposits into the IRA for 10 years (age 25 to age 35) on the amount accumulated by the end of Hal’s sixty-fifth year.
d. Rework parts a, b, and c, assuming that Hal makes all deposits at the beginning, rather than the end, of each year. Discuss the effect of beginning-of-year deposits on the future value accumulated by the end of Hal’s sixty-fifth year.
Future value (FV) is the value of a current asset at a future date based on an assumed rate of growth. The future value (FV) is important to investors and financial planners as they use it to estimate how much an investment made today will be worth...
Step by Step Answer:
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter