At the end of every year the self-employed person deposits $1,500 in the retirement account which earns 10% annually.
a) How much will be in account when individual retires at age of 65 if contributions start when person is 45 years old?
b) How much extra money will be in account if individual stops making contribution at age 65 but defers retirement until age 70?
c) How much extra money will be in account if individual continues making contribution but defers retirement until age 70?
d) Compare answers to (b) and (c). Determine effect of continuing contributions? How much is difference between two answers?
e) Graduating seniors earn $45,000 each year. If annual rate of inflation is 2%, what should the graduates earn after 20 years to maintain current purchasing power? If rate of inflation rises to 4%, will they be maintaining standard of living if they earn $100,000 after twenty years?
f) You are offered $900 5 years from now or $150 at end of each year for next five years. If you can earn 6% on your funds, which offer will you accept?
If you can earn 14% on funds, which offer will accept? Why are answers different?