Question - Betty Smith, a 25-year old graduate, wishes to retire at age 65. To supplement other source of retirement income, she can deposit $2000 each year into an individual retirement fund. The fund will be invested to earn an annual return of 10%, which is assumed to be attainable over the next 40 years.
a. If Betty makes annual end-of-year $2000 deposits into the fund, how much will she have accumulated by the end of her 65th year?
b. If Betty decides to wait until age 35 to begin making annual end-of-year $2000 deposits into the fund, how much will she have accumulated by the end of her 65th year?
c. Using your findings in parts a and b, discuss the impact of delaying making deposits into the fund for 10 years (age 25 to age 35) on the amount accumulated by the end of Betty's 65th year.
d. Rework parts a and b, assuming that Betty makes all deposits at the beginning, rather than the end, of each year. Discuss the effect of beginning-of-year deposits on the future value accumulated by the end of Betty's 65th year.