bruce and sharon are the same age and both had pension plans with their place of employment . sharon started contributing $2500 per year at age 25 . bruce did not start making regular contributions until age 40 , but at that point contributed $6500 per year . sharon's plan earned and annual rate of 4.55% compounded quartely whereas bruce's plan paid an annual rate of 4.85% compounded semi-annually .
a. what was the value of each plan when each is 65 years old?
b. how much bruce and sharon contribute to their respective plans?
c. how much interest did each earn ?
d. compare their rate of returns.
bruce and sharon are the same age and both had pension plans with their place of employment . sharon started contributing $2500 per year at age 25 . bruce did not start making regular contributions until age 40 , but at that point contributed $6500 per year . sharon's plan earned and annual rate of 4.55% compounded quartely whereas bruce's plan paid an annual rate of 4.85% compounded semi-annually .
a. what was the value of each plan when each is 65 years old?
b. how much bruce and sharon contribute to their respective plans?
c. how much interest did each earn ?
d. compare their rate of returns.
ANSWERS:
This is the formula you would use to calculate this: FV=P{[1 + R]^N - 1/ R}=FV OF $1 PER PERIOD,Where R=Interest rate per period, N=number of periods, P=periodic payment, FV=Future value.
a. Sharon will have accumulated a total of: $275,957.69 when she is 65.
Bruce will have accumulated a total of: $306,354.08 when he is 65.
b. Sharon's total contributions to her plan amounted to:$2,500 x 40 =$100,000.
Bruce's total contributions to his plan amounted to:$6,500 x 25 =$162,500.
c. Sharon earned:$275,957.69 - $100,000 =$175,957.69 in interest.
Bruce earned:$306,354.08 - $162,500 =$143,854.08 in interest.
d. Sharon's EFFECTIVE annual return is:4.63%.
Bruce's EFFECTIVE annual return is:4.91%.
