Answer :
Answer:
A) If you earned 10.5% interest each year, how much would you have when you turn 65?
assuming annual compounding:
future value = $5,000 x (1 + 10.5%)⁵⁶ = $1,340,471.47
B) If you earned 10.5% interest compounded monthly each year, how much would you have when you turn 65?
monthly compounding = 10.5% / 12 = 0.875% per month
future value = $5,000 x (1 + 0.875%)⁶⁷² = $1,743,869.89
C) If you wanted to have $2 million when you turn 65, what rate of interest would you need to earn assuming annual compounding?
$2,000,000 = $5,000 x (1 + r)⁵⁶
(1 + r)⁵⁶ = $2,000,000 / $5,000 = 400
(1 + r)⁵⁶ = 400
⁵⁶√(1 + r)⁵⁶ = ⁵⁶√400
1 + r = 1.1129
r = 1.1129 - 1 = 11.29%