Reference no: EM133039442
Problem - Angela Foo, a 25-year-old college graduate, wishes to retire at age 65. To supplement other sources of retirement income, she can deposit RM2,000 each year into a tax-deferred individual retirement arrangement (IRA). The IRA will be invested to earn an annual return 10%, which is assumed to be attainable over the next 40 years.
Question 1 - If Angela Foo makes annual end-of-year RM2,000 deposits into IRA, calculate how much she will have accumulated by the end of her sixty-fifth year?
Question 2 - If Angela Foo decides to wait until age 35 to begin making annual end-of-year RM2,000 deposits into IRA, determine how much will she have accumulated by the end of her sixty-fifth year?
Question 3 - By using your finding in question 1 and 2, explain the impact of delaying deposits into the IRA for 10 years (age 25 to age 35) on the amount accumulated by the end of Angela's sixty-fifth year? Support your answer with figures.
Question 4 - Recalculate question 1, 2 and 3, assuming Angela Foo makes all deposit at the beginning, rather than the end, of each year. Explain the effect of beginning-of-year deposits on the future value accumulated by the end of Angela's sixty-fifth year.
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