Question

20 POINTS!!! If you put $ 2 comma 700 a year for 3 years into an IRA that earns 3.3​% a​ year, how much will you have saved at the end of the third ​year? ​ (Note: Assume​ end-of-year contributions.)

Answer 1

At the end of 3 years, we could save upto $ 2975.4 with an interest rate of 3.3 %

Explanation:

If we are putting $ 2700 into our IRA ( individual Retirement Account) for 3 years and we are earning 3.3% profit every year, we need to find the total amount saved at the end of 3 years.

Since the interest is calculated for more than 1 year, this is an example of compound interest.

The formula used is:

`FV = P ( 1 + r/n) ^n^t`

where FV = future value

P= Principal amount of money deposited

r= annual interest rate ( in decimal form)

n= number of times interest rate is compounded (yearly)

t= time period

So for our given guestion:

P= $2,700

r = 3.3 % = 0.033

n= 1

t= 3

putting our values in the formula

`FV = P ( 1 + r/n) ^n^t`

`FV = 2700 ( 1+ 0.033 / 1 ) ^ 1 ^* ^ 3`

`FV = 2700 (1.033) ^ 3`

`FV = 2975.4`

So, at the end of 3 years, we could save upto $ 2975.4 with an interest rate of 3.3 %