Question

A friend creates an IRA (Individual retirement account) with an APR of 6.25%. She starts the IRA at the age of 25 and deposits $50 at the end of each month. How much will her IRA contain when she retires at the age of 65? a. $106,435.62 c. $106,601.32 b. $106,595.63 d. $106,613.15

Answer 1

Answer-

She will get $106,595.63 at the age of retirement.

Solution-

We know that,

$\text{FV of annuity}=P[\frac{(1+r)^n-1}{r}]$

Where,

P = periodic payment

r = rate per period

n = number of period

Here,

$P=50,\\\\r = 6.25\%\ annually=\frac{6.25}{12}\%\ monthly=\frac{6.25}{1200}\ monthly\\\\n=40\ years=40\times 12=480\ months$

Putting the values,

$\Rightarrow \text{FV of annuity}=50[\frac{(1.0052)^{480}-1}{{0.0052}}]$

$\Rightarrow \text{FV of annuity}=50[\frac{12.0556-1}{{0.0052}}]$

$\Rightarrow \text{FV of annuity}=106595.6257$

Therefore, she will get $106,595.63 at the age of retirement.

Answer 2

Answer:

b

Step-by-step explanation:

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