Money Matters! (investment problems)?
In this problem we will consider the financial fortunes of two young professionals, Max and Maria. Max and Maria each begin work at age 22 and will retire at age 65. (a) Maria prudently begins saving for retirement immediately, in- vesting $500 a month every month for her entire working career. If she earns a 7% annual return on her money, how much will she have when she retires? (b) Max waits until he turns 35 to begin saving for retirement. How much money does he need to invest each month (at the same rate of return as Maria) in order to have as much money as Maria when they retire? (c) Is there a moral to this story? (Note: There are all sorts of financial calculators on the internet that will give you the answers to these questions with no thinking involved. Show enough work to show you reasoned through the process yourself and did not let a machine do it for you.)
Public Comments
- Sunday night and here come the homework problems!!
- Why are we suposed to answer this?!?!?! I don't think you understand the purpose of this site. It is to help answer questions you have, not to answer a bunch of hypothetical math problems.
- This is one of those questions that are suppose to get you to think about retirement and smart investing principles sooner rather than later. O.K. I'm game. No web calculator will be used. Basically this is an annuity problem and an annuity of a future value problem. A) this is easy, 500 per month for 43 years or 516 months summation of 500*1.000583^(516-n) as n goes from (0-516) = $1,647,620 not bad, but that isn't adjusted for inflation. however a 7% rate of return is very conservative. B)Max is a little more tricky take that $1,647,620 = x*1.000583^(360-n) as n goes from (0-360) solve for x. x= $1343 per month C) hmmm, $500 vs. $1343 I think it is better to save sooner rather than later. What do you think? Did I pass professor?
