Reference no: EM132504098

Two best friends, Ben and Arthur, who grew up together in the same neighbourhood, are the same age and they graduated from high school together. At age 19, both friends started working at different companies but earning similar salaries.

Ben started investing $2,000 at the beginning of each year from his salary for retirement, at a rate of 12%, while Arthur decided to "enjoy life" with his salary. After 8 years (age 27) the friends had a discussion about their financial happenings over the period. Their explanation for doing what they did with money was so convincing to the other.

Arthur changed his focus and wanted to do more with his income, so he started investing $2,000 for retirement at the beginning of each year at 12% until he retired at age 65 (39 years later).

Ben realized he was not having as much fun as Arthur and decided to stop investing for just a few years. However,he never managed to invest another dollar towards retirement at age 65. Ben did not touch any of his previous investment and it continued to earn interest over the next 39 years.

a. In your assessment, who will have the higher retirement value at age 65, Ben or Arthur (no calculation required)? Justify your response.

b. What is Ben's investment total at the end of year 8?

c. What is Ben's total investment value at retirement (age 65)?

d. What is Arthur's total investment value at retirement (age 65)?

e. Based on the assessment of your calculations, what would you say is the main reason for there to be such a big difference between both retirement values at age 65?