1 answer

P 4-11 (similar to) ssume you can earn 8.5% per year on your investments. f you...

Question:

P 4-11 (similar to) ssume you can earn 8.5% per year on your investments. f you invest $130,000 for retirement at age 30, how
Beati has almond orchards, but he is sick of almonds and prefers to eat walnuts instead. The owner of the walnut Orchard next
P 4-11 (similar to) ssume you can earn 8.5% per year on your investments. f you invest $130,000 for retirement at age 30, how much will you have 35 years later for retirement? f you wait until age 40 to invest the $130,000, how much will you have 25 years later for retirement? Why is the difference so large?
Beati has almond orchards, but he is sick of almonds and prefers to eat walnuts instead. The owner of the walnut Orchard next door has offered to swap this year's crop with him. Assume he produces 1,020 tons of almonds and his neighbor produces 770 tons of walnuts. If the market price of almonds is $102 por ion and the market price of walnuts is $111 per lon: a. Should make the change? b. Does it matter whether he preters almonds or walnuts? Why of why not? cos

Answers

4-11]

future value = present value * (1 + rate of return)number of years

If you invest $130,000 at age 30

future value = present value * (1 + rate of return)number of years

future value = $130,000 * (1 + 8.5%)35

future value = $2,259,353.51

If you invest $130,000 at age 40

future value = present value * (1 + rate of return)number of years

future value = $130,000 * (1 + 8.5%)25

future value = $999,279.11

The difference is so large due to the effect of compounding. If you invest at age 30, the investment is compounded for a longer period. Thus, the value of the investment at retirement is much larger.

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