Question

An individual earns an extra $1500 each year and places this money at the end of each year into an Individual Retirement Account (IRA) in which both the original earnings and the interest in the account are not subject to taxation. If the account has an annual interest rate of 11.7% compounded annually, how much is in the account at the end of 45 years? (Round your answer to the nearest cent.)

Answer 1

The amount at the end of 45 years will be $1850545.58

Explanation:

Consider the provided information.

An individual earns an extra $1500 each year and places this money at the end of each year into an Individual Retirement Account an annual interest rate of 11.7% compounded annually, for 45 years.

Here A = 1500, r= 11.7% = 0.117 and n = 45.

According to future value formula:

`FV= A * \frac{{(1 + r)^n - 1}}{r}`

Substitute the respective values in the above formula.

`FV= 1500 * \frac{{(1 + 0.117)^(45) - 1}}{0.117}`

`FV= 1500 * \frac{{145.34255-1}}{0.117}`

`FV= 1850545.58`

Hence, the amount at the end of 45 years will be $1850545.58