Question

Sally makes deposits into a retirement account every year from the age of 30 until she retires at age 65. ​a) If Sally deposits $ 1000 per year and the account earns interest at a rate of 7 % per​ year, compounded​ annually, how much does she have in the account when she​ retires? ​b) How much of that total amount is from​ Sally's deposits? How much is​ interest?

Answer 1

Use the annuity formula:

Total = P((1+i)^n-1 / i)

In the problem P = 1000 per year, i = 0.07 ( 7%), n = 65-30 = 35

W = 1000(1+0.07)^35 -1 / 0.07)

W = $138,237

Total amount in the account is $138,237

The amount she deposits is 1000 per year x 35 years = $35,000

Total interest is 138,237 - 35,000 = $103,237