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Scenario #3: Isaiah


Isaiah is in his 50s and currently does not have a retirement fund. However, he recently read a few articles about the insufficient savings of people in retirement and, as a result, he decides he wants to start now. He saves $500 per month for 15 years and earns 7% by investing in the stock market* through an index fund.


9. What is the total balance in the account after 15 years?


10. How much of the total did Isaiah contribute himself?


11. How much money did Isaiah make through compounded returns in this investment account?


12. Explain why Isaiah’s total balance is less than Pamela’s even though his money earned the same rate of return and his monthly contribution was higher than hers.

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Question 4: If someone you know wanted to start investing, what best practices would you recommend they follow so they can harness the power of compounding? Explain your reasoning.


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Respuesta :

Answer:

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Explanation:

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9. The total balance in Isaiah's retirement savings account at the end of 15 years is $159,405.62.

10. The total amount that Isaiah contributed to the savings account is $90,000.

11. Through compounded returns in the investment account, Isaiah earned interest income of $69,405.62.

12. The reason Isaiah's account balance is less than Pamela's is because Isaiah started contributing in his 50s, while Pamela started in her 30s.

13. The best strategy to harness the power of compounding is to start saving early. If it were possible, start saving in your 20s. When you start savings early, the investor reaps greatly from the power of multiplication inherent in compounding interest.

Data and Calculations:

Monthly savings into retirement account = $500

Period of savings = 15 years or 180 months

Interest rate = 7%

N (# of periods) = 180 months (15 years x 12)

I/Y (Interest per year) = 7%

PV (Present Value) = 0

PMT (Periodic Payment) = $500

Results

FV (Future Value) = $159,405.62

Sum of all periodic payments = $90,000.00 ($500 x 180)

Total Interest = $69,405.62

Thus, if Isaiah had started saving in his 30s like Pamela, he could be having $905,780.38 in his retirement savings account by the time he is 65 years old.

Learn more: https://brainly.com/question/24674971 and https://brainly.com/question/15878003

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