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You and your friend are both 20 years of age.   You decide to invest $200/month for 15 years in an investment earning 6% annually (compounded monthly) and then you stop making contributions.  You then let the money sit and continue to compound for another 25 years.   Your friend waits 15 years and then begins investing $350/month for the next 25 years also in an investment earning 6% annually (compounding monthly). What is the value of your portfolio at the end of the 40 year investment period?

You and your friend are both 20 years of age.   You decide to invest $200/month for 15 years in an investment earning 6% annually (compounded monthly) and then you stop making contributions.  You then let the money sit and continue to compound for another 25 years.   Your friend waits 15 years and then begins investing $350/month for the next 25 years also in an investment earning 6% annually (compounding monthly). What is the value of your portfolio at the end of the 40 year investment period?

Essentials Of Investments
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
Section: Chapter Questions
Problem 1PS
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  1. You and your friend are both 20 years of age.  

    You decide to invest $200/month for 15 years in an investment earning 6% annually (compounded monthly) and then you stop making contributions.  You then let the money sit and continue to compound for another 25 years.  

    Your friend waits 15 years and then begins investing $350/month for the next 25 years also in an investment earning 6% annually (compounding monthly).

    What is the value of your portfolio at the end of the 40 year investment period?

       

    $58,163
       

    $174,856
       

    $242,548
       

    $259,699
Expert Solution
Step 1

Periodic investments are being made here and hence this is a form of annuity.

Essentially we will have to compute the future value of the periodic investments i.e. future value of the annuities.

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