A graduate begins working when she turns 26 at an annual salary of $60,000. She
ID: 1179196 • Letter: A
Question
A graduate begins working when she turns 26 at an annual salary of $60,000. She is promised raises of $2,500 per year every year. She plans to set aside 10% of her salary into a retirement plan (i.e., her first retirement set aside amount is $60,000x0.1=$6,000, the 2nd is $62,500x0.1=$6,250 and s on). She plans to work till her 60th birthday. How much she would have accumulated at retirement assuming that her retirement account makes an average annual ineterst of 4.5% per year (ignore inflation).
Explanation / Answer
Method used is to calculate the annual cash flows, then calculate the NPV.
Total amount accumulated in the account after the retirement = NPV(1+i)^n
i)$747,294.25