From age 25 to age 40, Jessica deposited $150 at the end of each month into a tax-free retirement account. She made no withdrawals or further contributions until age 65. Alex made deposits of $300 into his tax-free retirement account from age 40 to age 65. If both accounts earned interest at the rate of 5%/year compounded monthly, who ends up with a bigger nest egg upon reaching the age of 65, Jessica or Alex?
A) Jessica and Alex will end up with the equal retirement accounts.
B) Jessica will end up with the larger retirement account.
C) Alex will end up with the larger retirement account.

Question

From age 25 to age 40, Jessica deposited $150 at the end of each month into a tax-free retirement account. She made no withdrawals or further contributions until age 65. Alex made deposits of $300 into his tax-free retirement account from age 40 to age 65. If both accounts earned interest at the rate of 5%/year compounded monthly, who ends up with a bigger nest egg upon reaching the age of 65, Jessica or Alex? ​
A) Jessica and Alex will end up with the equal retirement accounts.
B) Jessica will end up with the larger retirement account.
C) Alex will end up with the larger retirement account.

Quizplus · Accepted Answer

Jessica's contributions benefit from a longer period of compound interest, allowing her account to grow more despite her lower monthly contribution compared to Alex.

From Age 25 to Age 40, Jessica Deposited $150 at the End