You are saving for your retirement 41 years from now. You are going to save 2000 euros per year every year for 40 years starting from next year. The annual investment interest rate is 5%. How much money are you going to have at the time of your retirement?

Future Value of annuity =P1+rn-1r where : P = Periodic payment r = rate of interest n= number of…

Answered: You are saving for your retirement 41…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 22P

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You are saving for your retirement 41 years from now. You are going to save 2000 euros per year every year for 40 years starting from next year. The annual investment interest rate is 5%. How much money are you going to have at the time of your retirement?

Expert Solution

Step 1 Concept

Future Value of annuity = $P [\frac{{(1 + r)}^{n} - 1}{r}]$

where :

P = Periodic payment

r = rate of interest

n= number of years

Step 2 Calculation of Future value of annuity

Future Value of annuity = $P [\frac{{(1 + r)}^{n} - 1}{r}]$

where :

P = Periodic payment = 2000 Euro

r = rate of interest = 5 %

n= number of years = 40 years

FV = 2000 euro {[(1+0.05)⁴⁰-1] / 0.05}

FV = 2000 * {[(7.039989)-1] / 0.05}

FV = 2000 * { 6.039989 / 0.05 }

FV = 2000 * 120.7997

FV = 241599.56

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