Assume That Two People Save $100 Per Month (The Same

question 63

Multiple Choice

Assume that two people save $100 per month (the same for both) and earn exactly the same positive annual interest rate of 2%. Also assume that one of them started saving at 20 years old, while the other started saving at 40 years old. Which statement is correct?

• A) On their 60th birthday, the one who started saving later would have exactly half as much as the one who began saving earlier.
• B) On their 60th birthday, they would both have the same amount.
• C) On their 60th birthday, the one who started saving later would have less than half the amount that the one who began saving earlier has.
• D) On their 60th birthday, the one who started saving later would have received a larger real interest rate, but not enough to "catch up" to the one who began saving earlier.
• E) On their 60th birthday, neither would have anything if inflation had been negative during the period.

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Definitions:

Kubler-Ross

Kubler-Ross refers to Elisabeth Kübler-Ross, a psychiatrist known for her pioneering work on the five stages of grief.

Adjustment

The psychological process of adapting or coping with new, challenging, or changing environments or situations.

Dying

The process of approaching death or the cessation of life.

Kubler-Ross

A psychiatrist known for developing the Kubler-Ross model, which outlines five stages of grief that patients may go through when faced with terminal illness.