James is currently 25 years old and earns $40,000 a year. His boss has promised that he will get a raise at 3% per year. James has recently won $100,000 off the lottery. He anticipates to retire at age 60. James will invest the $100,000 lottery win through an investment bank into a risk free fund (today). The yearly interest rate that James will receive is 4% (compounded yearly). James also plans to save 5% of his salary every year, and deposit it on a mutual fund every year. He is paid on a bi-weekly basis, but he will deposit his savings on the mutual fund at the end of the year. James expects to earn a return of 6% per year on this investment (compounded on a yearly basis). He will make the first deposit a year from today. His salary this year will be 3% more than $40,000 as the most recent yearly salary he has received is $40,000 per year. He will make his last deposit when he is 60 years old.   How much money will James have in his savings when he retires at the age of 60?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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James is currently 25 years old and earns $40,000 a year. His boss has promised that he will get a raise at 3% per year. James has recently won $100,000 off the lottery. He anticipates to retire at age 60. James will invest the $100,000 lottery win through an investment bank into a risk free fund (today). The yearly interest rate that James will receive is 4% (compounded yearly). James also plans to save 5% of his salary every year, and deposit it on a mutual fund every year. He is paid on a bi-weekly basis, but he will deposit his savings on the mutual fund at the end of the year. James expects to earn a return of 6% per year on this investment (compounded on a yearly basis). He will make the first deposit a year from today. His salary this year will be 3% more than $40,000 as the most recent yearly salary he has received is $40,000 per year. He will make his last deposit when he is 60 years old.

 

How much money will James have in his savings when he retires at the age of 60?

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