Scenario 12.1: Jennifer has decided to give up her pack-a-day smoking habit and invest the money she would have spent on cigarettes in a retirement account. At $6.00 a pack, Jennifer is currently spending $2,190 per year on cigarettes. Jennifer is 25 years old and plans to retire in 35 years, at age 60. She has chosen a retirement account that will earn a long-term average return of 5 percent per year. Jennifer is currently earning $40,000 annually. Assume that the average annual inflation rate will be 5 percent per year, that the cost of cigarettes will increase with inflation, and that Jennifer's income will also rise with the inflation rate.
-Refer to Scenario 12.1. Assume Jennifer gave up smoking for only one year and invested that money ($2,190)at the 5 percent interest rate. How much would the investment be worth in 35 years?

Question

Quizplus · Accepted Answer

To calculate the future value of a single investment over time, you can use the formula for compound interest: FV = PV(1 + r)^n, where FV is the future value, PV is the present value (initial investment), r is the annual interest rate, and n is the number of years. Plugging in Jennifer's investment of $2,190 at a 5% interest rate over 35 years gives: FV = $2,190 * (1 + 0.05)^35 ≈ $12,080.