Worker a Annually Invests $1,000 in an IRA for Nine

question 7

Essay

Worker A annually invests $1,000 in an IRA for nine years (ages 27 through 35)and never makes another contribution. Worker B annually invests $1,000 in an IRA for thirty years (ages 36 through 65). Which worker will have more in his or her account when he or she retires if they both earn 8 percent on their investments, assuming both investors work for a duration of thirty years?

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Definitions:

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period of time, used in capital budgeting to assess the profitability of an investment.

NPVGO

Net Present Value of Growth Opportunities, a measure assessing the value of future investment opportunities of a company.

Growth Opportunities

Prospects or chances a company has to expand its operations, increase sales, and achieve higher profits.

Risk-Adjusted

A process of modifying financial projections or valuations to account for the uncertainty and potential risk involved.