1 answer

Bob and Lisa are both married, working adults. They both plan for retirement and consider the...

Question:

  • Bob and Lisa are both married, working adults. They both plan for retirement and consider the $2,000 annual contribution a must.

    First, consider Lisa's savings. She began working at age 20 and began making an annual contribution of $2,000 at the first of the year beginning with her first year. She makes 13 contributions. She worked until she was 32 and then left full time work to have children and be a stay at home mom. She left her IRA invested and plans to begin drawing from her IRA when she is 65.

    Bob started his IRA at age 32. The first 12 years of his working career, he used his discretionary income to buy a home, upgrade the family cars, take vacations, and pursue his golfing hobby. At age 32, he made his first $2,000 contribution to an IRA, and contributed $2,000 every year up until age 65, a total of 33 years / contributions. He plans to retire at age 65 and make withdrawals from his IRA.

    Both IRA accounts grow at a 7% annual rate. Do not consider any tax effect.
  • Write a two to three (2-3) paragraph summary in which you:
    • Create a chart summarizing the details of the investment for both Bob and Lisa.
    • Explain the results in terms of time value of money.

Answers

Calculation of Maturity Value of Lisa's Investment:File Home InsertPage LayoutFormulas DataReview View DeveloperNitro Pro8 5 EX Σ AutoSum. Times New Roman . 14.A. A-=-19- в 1 u . d! 습·ーミ wrap Text General Copy Fill % ,渦鼎Conditional Format- Cell-Insert Delete Format Merge & Center.</p><p>Sort & Find & 2 Clear Filter Select Editing Formatting as Table Styles Clipboard Font Alignment Number Cells 118 Lisas Investment Year of FVF @ 7% Maturity Value at the age of 65 Years Amount of 20 S 22 S 2,00021.002452 S 2,00019.628460 S 2,00018.344355 S 2,000 17.144257 S 2,00016.022670 S 2,000 14.974458 S 2,00013.994820 |S 2,000 13.079271 S 2,00012.223618 S 2,00011.423942 S 2,00010.676581 S 2,000 2,000 42,004.90 39,256.92 36,688.71 34,288.51 32,045.34 29.948.92 27,989.64 26,158.54 24,447.24 22,847.88 21,353.16 19,956.23 18,650.68 375,636.68 24 S 25 S 26 S 27 S 剉 2 12 29 S 31 S Total Maturity Value 13 15 16 17 9.978114 S 9.325340 S 19 20 21 Sheets sheet4 . Sheets Sheets Sheet7 | Sheet9 ) ーH Ready ! Em 100%

Calculation of Maturity Value of Bob's Investment:

Formula View:File Home Insert Page Layout﹁ Formulas Data Review View Developer Nitro Pro 5 EX Define Name calculate Now | ruse in Formula- E Trace Dependents φ Error Checking Insert Autosum Recently Financial Logical Text Date & Lookup & Math More Used - Time- Reterence - & Trig - FunctionsManager ECreate from SelectionRemove Arrows-Evaluate Formula Windo Options Function Library Defined Names Formula Auditing Calculation 118 Lisas Investment Amount of Contribution 2000 FVF @ 7% p.a. 1 1.07 (65-C4) 1 1.07 (65-C5 11.07 (65-C6) 11.0765-C7) =1 * 1.07(65-CS) 1 1.0765 11.07 (65-C10 1 Maturity Vaue at the age of 65 Years 20 21 E4 D4 E5*D5 -E6 D6 -E7 D7 -ES DS E9 D9 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 23 25 26 27 28 C9) 1.07465-C11) =1+1.07(65-C12) -1 E10 D10 E11 D11 -E12 D12 -E13 D13 12 *1.07465-C13) 11.07(65-C14 11.07 65-C15) 11.07 (65-C16) 13 30 -E14 D14 -E15 D15 E16 D16 16 32 17 Total Maturity Value -SUM(F4:F16) 19 21 Sheet8 Sheet4 Sheets Sheet6 Sheet7 Sheet9 Ready lain 100% (︶File Home Insert Page Layout﹁ Formulas Data Review View Developer Nitro Pro 5 EX Define Name Trace Precedents 떫 Trace Dependents ◆ Error Checking Cakculate Now Use in Formula- Insert Autosum Recently Financial Logical Text Date & Lookup & Math More Used - Time- Reterence - & Trig - FunctionsManager ECreate from SelectionRemove Arrows-Evaluate Formula Windo Options Function Library Defined Names Formula Auditing Calculation M65 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 =1 * 1 .07(65-E142) 11.07 (65-H43 -11.07 (65-H44) =1*1.07/(65-H45) -11.07(65-H46) -11.07 (65-H47 J42 142 J43 143 J44 144 J45 145 -J46 146 J47 147 J48 148 J49 149 J50 150 151 151 152 152 J53 153 J54 154 -J55 135 J56 156 57 157 -J58 158 47 =1*1 07( 65-H48) -11.07 (65-H49 11.07 (65-H50) =1 * 1.07(65-H51) 1107 65-H52 -11.07 (65-H53) 11.07 (65-H54 -1*1.07(65-H55) 1*1.07 (65-H56) -1*1.07 (65-H57) -11.07 (65-H58 52 62 Total Maturity Value SUMK25:K58) 14 ㅔ ト HI SheetB . Sheet4 Sheet5 . Sheeto Sheet7 | Sheet9 Ready !

Summary:

  • Lisa has made investment pattern starting from the year 20 and up to the year 32, which has total 13 contributions of $2000 only.

    While Bob has made investment pattern starting from year 32 till year 65, which has total 33 contributions of $2000 only. Hence, the maturity value of Bob's Investment is much higher than that of Lisa's Investment.

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