A newly employed engineer decides to place 5 % of her salary every year into a retirement account. Her first year salary is $45.000, and it is anticipated that her real salary (after removing the effect of inflation) will increase 3% per year. What will be in the account at the end of year 30 if annual interest earned on the account is

FV= $254,887.23

Explanation:

We will include the growth in the salary in the interest rate.

I assume an interest rate of 5%

Interest rate (i)= 0.05 + 0.03= 0.08

Number of periods (n)= 30 years

Annual deposit (A)= $45,000*0.05= $2,250

To calculate the future value (FV), we need to use the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

FV= {2,250*[(1.08^30) - 1]} / 0.08

FV= $254,887.23

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