Find the interest her money earned

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Reference no: EM13737301

When people are struggling financially, they often don't believe that they can make a difference in their financial security in future years by disciplining themselves to save money regularly now. The goal is simply too big to tackle when you are struggling to make ends meet every month. Instead, people in this situation often fall prey to one of two self-defeating behaviors:

A. They invest money in a fantasy like buying lottery tickets with hopes of winning a $30 million jackpot for an investment of a few dollars' worth of tickets, , OR

B. They know that trying to win the lottery isn't practical, so they offer themselves a small, often daily luxury that they feel they can afford, like a mocha latte from the local coffee house. (Another example of such an indulgence would be a weekly pedicure.) Let's see what happens if we modify those behaviors a little. (Round all of your answers to the nearest cent.)

1. Assume that 25-year-old Denise wastes $10 per week buying lottery tickets, averaging $520 per year. Now let's assume that Denise "sees the light" and decides to take that $520 she would have spent on lottery tickets and deposit it at the end of each year in an annuity paying 6% compounded annually.

a. How much would Denise have in this annuity after 20 years?

Answer: __________________________________

b. Find the interest her money has earned during that 20 years.

Answer: __________________________________

2. After a couple of years, 27-year-old Denise feels so good about the money she's been saving instead of buying futile lottery tickets that she takes investing in herself a step further. To face her sometimes frustrating job, Denise has typically bought a large mocha latte every day on her way to work Monday through Friday. She decides to stop buying that coffee just two days a week, and add that additional $40 she's saving every month (for a total of $480 a year) to a new Roth IRA account that pays her 7% compounded monthly.

a. How much would Denise have in this IRA annuity account after 18 years?

Answer: __________________________________ Math 1324 - Portfolio 3

b. Find the interest her money earned during that 18 years.

Answer: __________________________________

3. By now, Denise is 45 years old. She's got a pretty good job, but she's starting to think about retirement and realizing that Social Security just isn't enough to live on after age 65. Since her IRA pays a little better interest than that 6% annuity paid (and compounds it more often), she decides to move all the 6% money into the IRA account with the other money.

a. How much total money does she begin with in the IRA account at this point?

Answer: __________________________________

b. Up to this point, Denise has been saving $1000 a year ($520 + $480 in the two accounts). Because she's making better money now, she wants to increase her investment in herself by putting $150 a month ($1800 a year) into the IRA account on top of the money that's already in there. So...how much money will be in total that IRA account in 20 years when she turns 65?

Answer: ______________________________

Reference no: EM13737301

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