Time Value Of Money Activityfor This Activity Read The Scenario And T
Time Value of Money Activity for this activity, read the scenario and then use the provided Week 6 Time Value of Money Excel Template [XLSX] and Week 6 Time Value of Money Template [DOC] templates to complete your activity before uploading them to the submission area. Note: There are locked cells in the Excel template. The cells have been locked to prevent the formulas from being disturbed. The cells that you will need to use to complete this assignment are not locked. You may create your own templates, however, it is recommended that you use the templates provided. Note: Watch the Excel tutorial videos linked in this week to learn how to use Excel before attempting the assignment. You can use the template provided or you may create your own template based on the one provided. Scenario Larry and Beth are both married, working adults. They both plan for retirement and consider the $6,000 annual contribution a must. First, consider Beth's savings. She began working at age 20 and began making an annual contribution to her IRA of $6,000 each year until age 32 (12 contributions). She then left full-time work to have children and be a stay-at-home mom. She left her IRA invested and plans to begin drawing from her IRA when she is 65. Larry started contributing to his IRA at age 32. In the first 12 years of his working career, he used his discretionary income to buy a home, upgrade the family cars, take vacations, and pursue his golfing hobby. At age 32, he made his first $6,000 contribution to an IRA and contributed $6,000 every year up until age 65 (33 contributions). He plans to retire at age 65 and make withdrawals from his IRA. Both IRA accounts grow at an 8 percent annual rate. Do not consider taxes or inflation. Instructions Create a chart summarizing the details of the investment for both Larry and Beth. Write a one-paragraph summary in which you explain the results in terms of the time value of money for both Larry and Beth. (Hint: discuss why one person was able to save a great deal more than the other.) Note: This course requires the use of Strayer Writing Standards. For assistance and information, please refer to the Strayer Writing Standards link in the left-hand menu of your course. Check with your professor for any additional instructions. For help with this homework assignment, please view this video: Click here to watch the video By submitting this paper, you agree: (1) that you are submitting your paper to be used and stored as part of the SafeAssign™ services in accordance with the Blackboard Privacy Policy; (2) that your institution may use your paper in accordance with your institution's policies; and (3) that your use of SafeAssign will be without recourse against Blackboard Inc. and its affiliates.
Paper For Above instruction
The scenario presented involves two individuals, Beth and Larry, who are planning for retirement through
regular contributions to their Individual Retirement Accounts (IRAs). Their different starting ages and contribution timelines exemplify the core principles of the time value of money (TVM). Analyzing their investment paths highlights how timing and consistency in investment significantly impact the growth of retirement savings, emphasizing the importance of early and sustained contributions.
Beth’s investment strategy begins at age 20, with annual contributions of $6,000, continuing uninterrupted until she is 32—a total of 12 contributions. Afterward, she ceases contributions temporarily due to her maternity leave but leaves her IRA invested. She intends to start drawing from her IRA at age 65. Larry’s approach, in contrast, starts later, at age 32, with his first contribution of $6,000, which he continues annually until age 65, totaling 33 contributions. Despite starting later, Larry’s contributions extend over a longer period, giving room for compound growth, which is a critical factor in wealth accumulation under the TVM principle.
Utilizing the week-6 time value of money Excel template, the cumulative growth of both accounts can be modeled with an 8 percent annual return, assuming taxes and inflation are disregarded. Beth’s contributions, starting early, benefit from the power of compounding over two decades, enabling her to accumulate a substantial retirement fund despite fewer contributions. Her total savings at retirement will be significantly influenced by her early start, which allows her investments more time to grow exponentially. Conversely, Larry’s later contributions mean he misses out on the early compound growth phase but compensates with more years of contributions and compound interest accumulation over a prolonged period.
The chart summarizing the investments demonstrates that Beth’s early contributions grow over a longer duration, leading to a higher final balance at age 65 compared to Larry, despite fewer total contributions. The difference illustrates how the time value of money favors early and consistent investing. Compounded interest accelerates the growth of investments the longer they remain invested, so Beth’s strategy capitalizes on the exponential growth of money invested from an early age. Larry’s later start, while providing a similar contribution amount over more years, results in a smaller final balance due to the shorter compounding period.
In conclusion, the comparison underscores that early contributions are advantageous because of the compounding effect inherent in the time value of money. Beth’s early start at age 20 enables her investments to grow unencumbered by the gaps in contribution, illustrating the importance of starting to
save for retirement as early as possible. Larry’s later start highlights the necessity of either increasing contributions or starting earlier for optimal retirement preparedness. The analysis emphasizes that time, patience, and consistent investment are key components to maximizing retirement savings, aligning with fundamental TVM principles.
References
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