You plan to retire in 20 years. Use present value tables to calculate whether it is better for you to save $22,000 a year for the last 10 years before retirement or $16,300 for each of the 20 years. Assume you are able to earn 10 percent interest on your investments. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1) (Use appropriate factor(s) from the tables provided and final answer to the nearest whole dollar amount.)

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Kolawole845 Kolawole845 · Answer 1 · 2020-04-18T06:07:12+02:00

Answer:

Decision ; Option 2 is better because it would yield more future sum

Explanation:

The approach would be to be to determined the future of the investment for the two options and then go for the higher

Option 1

FV = A× ((1+r)^n - 1)/r

FV- Future value , r- interest rate , n- number of years , A- annual deposit

FV = 22,000 × ((1.1)^10 - 1)/0.1

= $350,623.341

Option 2

FV = 16,300 ×( 1.1^20 - 0.1)/0.1

=$933,582.49

Decision ; Option 2 is better because it would yield more future sum

( about $582,959.15 ) more than option 1