Question

max is a 22 year old planning to retire at age 67 he is i vesting in a mutual fund and hopes to earn the average inflation adjusted stock market return of 7% anually. If max deposits $200 per month into this fund, how much can he expect to have when he retires? Show work

Answer 1

Based on the calculation below, the amount Max can be expected to have when he retires is $758,518.94.

How to calculate the future value (FV)?

The amount he will be expected to have when he retires can be calculated using the formula for calculating the future value of an ordinary annuity as follows:

FV = D * (((1 + r)^n – 1) / r) ……………………………….. (1)

Where;

FV = Future value or the expected amount when he retires = ?

D = Monthly deposit = $200

r = monthly average inflation adjusted stock market return = 7% / 12 = 0.07 / 12 = 0.00583333333333333

n = number of months = (67 -  22) * 12 = 540

Substituting the values into equation (1), we have:

FV = $200 * (((1 + 0.00583333333333333)^540 – 1) / 0.00583333333333333)

FV = $758,518.94

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