Marvin has determined that he can save at least $6 per day by quitting smoking and cutting out one cup of coffee or one can of pop per day. Therefore, he has decided to make contributions of $175 to his Retirement Savings Plan (RSP) at the end of each month for 35 years. He anticipates that his RSP will earn 13.2% compounded monthly. He is 20 years old now and therefore he will be only 55 when this plan is completed. How much money will be in his RSP when he is 55 years of age?
A) Less than $500,000
B) Between $500,000 and $1,000,000
C) Between $1,000,000 and $1,500,000
D) Between $1,500,000 and $2,000,000
E) More than $2,000,000

Question

Quizplus · Accepted Answer

The future value of Marvin's RSP can be calculated using the formula for the future value of a series: FV = P * [((1 + r)^n - 1) / r], where P is the payment amount ($175), r is the monthly interest rate (13.2% per year or 0.132 / 12 per month), and n is the total number of payments (35 years * 12 months/year = 420 payments). Plugging in the values: FV = 175 * [((1 + 0.011)^420 - 1) / 0.011], which results in a value between $1,500,000 and $2,000,000.

Marvin Has Determined That He Can Save at Least $6