Question

2. Ricky is 35 years old. He plans to retire when he is 63. He has opened a

traditional retirement account that pays 1% interest compounded monthly. If
he makes monthly deposits of $400, how much will he have in the account by
the time he retires?

Answer 1

To calculate the amount Ricky will have in the account when he retires, we can use the formula for compound interest. Substituting the given values into the formula, we can calculate the future value of the investment.

Step-by-step explanation:

To calculate the amount Ricky will have in the account when he retires, we can use the formula for compound interest:

A = P(1 + r/n)^(nt)

Where:

A is the future value of the investment

P is the principal amount (initial deposit)

r is the annual interest rate (expressed as a decimal)

t is the number of years the money is invested for

n is the number of times interest is compounded per year

For Ricky's case, he plans to retire in 28 years (63 - 35) and makes monthly deposits of $400. The interest rate is 1% per year, compounded monthly (n = 12). So, substituting the values into the formula:

A = 400(1 + 0.01/12)^(12 * 28)

Now we can solve this equation using a calculator or spreadsheet to find the future value of the investment, which will be the amount Ricky will have in the account by the time he retires.