Problem:
Hal Thomas, a 25-year old college graduate, wishes to retire at age 65. To supplement other sources of retirement income, he can deposit $2000 each year into a tax-deferred individual retirement arrangement (IRA). The IRA will be invested to earn an annual return of 10%, which is assumed to be attainable over the next 40 years.
a. If Hal makes annual end of year $2000 deposits into the ira, how much will he have accumulated by the end of his 65th year?
b. If Hal decides to wait until age 35 to begin making annual end of year 2000 deposits into the ira, how much will he have accumulated by the end of his 65th year?
c. Using your findings in parts a and b, discuss the impact of delaying making deposits into the IRA for 10 years (age 25 to age 35) on the amount accumulated by the end of Hal's sixty-fifth year.
d. Rework parts a, b, and c assuming that Hal makes all deposits at the beginning rather than the end of each year. Discuss the effect of beginning of year deposits on the future value accumulated by the end of Hal's 65th year.
Note: Provide support for rationale.