At age 25, James, thinking ahead, deposits $2500 into a retirement account with an average annual interest rate of 11%.
A) Find Jeames' age when his investment is wirth ten times its original value.
b) If James had funded this account at age 18, how much money would give same result as depositing $2500 at age 25? Round to nearest dollar.
c) Suppose the $2500 he deposited when he was 25 grew to $25,000 when he was 40. whatcwas average annual return on his investment? Round answer to nearest tenth of a percent.
Please show all work! Thank you.
Im okay with a and c but am having a hard time with b.
The b part was answered here in detail!. What is it you don't understand? Please be very specific:
http://web2.0calc.com/questions/at-age-25-james-thinking-ahead-deposits-2500-into-a-retirement-account-with-an-average-annual-interest-rate-of-11
+12531 At age 25, James, thinking ahead, deposits $2500 into a retirement account with an average annual interest rate of 11%....
Omi67:
You answer in (b) is wrong!!. Please look here for the answer. Thanks.
http://web2.0calc.com/questions/at-age-25-james-thinking-ahead-deposits-2500-into-a-retirement-account-with-an-average-annual-interest-rate-of-11
Is there any way to calculate b without the PV=FV formula, because my book doesnt mention it anywhere and Im wondering if there is another way to solve it.
Yes, Just solve this equation for x:
x=2500/(1.11^7)
x=2500 / 2.07616015289871
x=$1,204.15, which is the answer that we got before.
P.S.If you are studying money and how it grows, then your teacher or your book should explain to you what PV, FV,........etc. mean, because you are going to see them in the "real world", all the time, when you are dealing with money. It is the standard language of investing money.
Thank you! The x=2500/1.11^7 is exactly what I was looking for. Is there a way to plug it in to see if it is correct?
Plug in? Where? In the PV, FV formula? PV formula says this:
PV=FV x (1 + R)^-N. I explained to you in the previous answer what they stand for. So substitute:
PV=2,500 x [1+11%]^-7, or you could write it like this, which is exactly the same:
PV=2,500 / [1 + 11%]^7. Notice the difference in - or + 7
PV=2,500 / 1.11^7, which is exactly the same as solving for x, which we just did. Right?
PV=2,500 / 2.07616015289871
PV=$1,204.15
