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Example 11: Ellen just turned 35 years old and she is planning for retirement by saving some money every year. She will save $10,000 in a year. She will be able to increase her savings by 5% per year. With this plan, if she earns 10% per year on her savings, how much will Ellen have saved at age 65?

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Answer:

Final value= $4,347,451.46

Explanation:

Giving the following information:

She will save $10,000 in a year. She will be able to increase her savings by 5% per year. With this plan, she earns 10% per year on her savings.

To calculate the final value, we need to use the following formula:

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

A= annual deposit= 10,000

i= 0.10 + 0.05= 0.15

n= 65-35= 30

FV= {10,000*[(1.15^30)-1]}/ 0.15= $4,347,451.46

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