Barry heard in his Personal Finance class that he should start investing as soon as possible. He had always thought that it would be smart to start investing after he finishes college and his salary is high enough to pay the bills and to have money left over. He projects that will 50-10 years from now. Barry wants to compare the difference between investing now and investing later. A financial advisor who spoke to Barry suggested that a Roth IRA (Individual Retirement Account) would be a more profitable investment over long term than a regular IRA, so Barry wants to seriously consider the Roth IRA. When table values do not include the information you need use the FV= $1(1 +R)^N where R is the period rate and N is the number of periods.

1. If Barry purchases a $2,000 Roth IRA when he is 25. Years old and expects to earn an average of 6% per year compounded annually over 35 years (until he is 60), how much will accumulate in the investment?

2. If Barry doesn’t put the money in the IRA until he is 35 years old, how much money will accumulate in the account by the time he is 60 years old? How much less will he earn because he invested 10 years later?
3. Interest rate is critical to the speed at which your investment grows. If $1 is invested at 2%, it takes approximately 34.9 years to double. If $ 1 is invested at 5%, it takes approximately 14.2 years to double. Use table 13-1 to determine how many years it takes $1 to double if invested at 10; at 12%.

4. at what interest rate would you need to invest to have your money double in 10 years?

  1. 👍 0
  2. 👎 0
  3. 👁 332
asked by Peter
  1. 1. P1 = Po(1+r)^n

    Po = $2,000

    r = 0.06

    n = 35yrs * 1comp./yr. = 35 Compounding

    P1 = 2000(1.06)^35 = $15,372.17

    2. Use same Eq as above with a 25-yr.

    P2 = Po(1+r)^n

    Difference = P1-P2.

    3. Use your table and compare with calculated values below.

    P = 1(1.10)^n = 2
    n*Log1.1 = Log 2
    n = Log 2/Log1.1 = 7.2725409 Compounding

    T=7.273comp. periods * 1yr/comp. period = 7.273 years.

    P = 1(1.12)^n = 2
    n*Log 1.12 = Log 2
    n = Log 2/Log 1.12 = 6.11 compounding
    periods. T = 6.11 years.

    4. P = $1(1+r)^10 == 2
    10*Log(1+r) = Log 2
    Log(1+r) = Log 2/10 = 0.03010
    1+r = 10^0.0301
    1+r = 1.07177
    r = 0.07177 or 7.18%.

    1. 👍 0
    2. 👎 0
    posted by Henry

Respond to this Question

First Name

Your Response

Similar Questions

  1. business Maths

    The main concept to investing is diversify your investments. The old saying of “don’t put all of your eggs in one basket” exemplifies this concept. Kerry Stutsman has saved $2,400 and is wondering how to invest it. She was

    asked by Ekanki on April 23, 2012
  2. com170

    CAN YOU TELL ME IF I HAVE FIVE ADVERBS FIVE ADJECTIVES AND FIVE PRONOUNS I recently had a serious talk with my sister about her personal finance; she wants to be able to buy a new home this year. We carefully went over all her

    asked by angela on January 24, 2011
  3. english

    What verb tense would this sentence be? I am learning so much about financial planning in my personal finance class.

    asked by J on September 29, 2010
  4. math

    Barry is getting an early start on this year's summer chores, he started painting his house already. Barry started out with 110 ounces of blue paint, 120 ounces of red paint, 150 ounces of white paint. Barry painted 4 EQUAL SIZED

    asked by Anonymous on February 22, 2015
  5. Business

    The contrarian approach to investing is best illustrated by A. staying out of the market no matter what experts are saying. B. always buying when others are selling. C. investing in mutual funds, contradicting the idea that

    asked by anon on May 24, 2012
  1. Social Studies

    How can personal finance decisions affect the economy? (3 points) a. Saving puts less of your money into the economy*** b. Spending your money doesn't put money into the economy. c. investing your money can aid businesses and

    asked by Anonymous on March 29, 2018
  2. arithmetic

    Barry and Steve are good friends. Barry wants to buy a new computer, but he doesn't have the money for it right now. Barry says he will pay Steve $2000.00 in five years if Steve gives him $1600.00 for the computer today. Steve

    asked by RACHELLE on June 9, 2008
  3. English

    For homework i was asked to write a personal response to one of the poems that we did in class ("the great hunger' section 1 by Patrick Kavanagh) I really don't know how to start, I read that "personal response" is what i think

    asked by Violetta on November 28, 2009
  4. writing

    can you give me a few examples on a personal conversation about personal finance and credit cards using five different pronouns?

    asked by rhonda on October 17, 2010
  5. english

    Examples of personal interaction with a friend or family member about personal finance or credit cards

    asked by Anonymous on September 24, 2010

More Similar Questions