Assume that you are 30 years old today, and that you are planning on retirement at age 65. Your current salary is $42,000 and you expect your salary to increase at a rate of 5% per year as long as you work. To save for your retirement, you plan on making annual contributions to a retirement account. Your first contribution will be made on your 31st birthday and will be 8% of this year's salary. Likewise, you expect to deposit 8% of your salary each year until you reach age 65. Assume that the rate of interest is 9%. The present value (PV)(at age 30)of your retirement savings is closest to ________.

Question

Quizplus · Accepted Answer

The present value of the retirement savings can be calculated using the formula for the present value of a growing annuity. The salary grows at 5% per year, and the contribution is 8% of the salary. The interest rate is 9%. Using these values, the present value is closest to $61,303.

Assume That You Are 30 Years Old Today, and That