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Consider Abraham and Zach. They both will save $7,200 per year until they retire at age 65. Abraham and Zach, however, will start saving at different ages. Abraham will start saving when he is 25 years old. Zach will start saving when he is 45 years old. Assuming the interest rate each year is 7%, how much money will the first year of savings amount to when they retire

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Answer:

Total FV= $1,732,540.35

Explanation:

Giving the following information:

Annual deposit= $7,200

Annual interest rate= 7%

To calculate the future value at the age of retirement, we need to use the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

Abraham:

FV= {7,200*[(1.07^40) - 1]} / 0.07

FV= $1,437,372.81

Zach:

FV= {7,200*[(1.07^20) - 1]} / 0.07

FV= $295,167.54

Total FV= $1,732,540.35