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James plans to fund his individual retirement account with 20 annual deposits of $2,000, continuing for the next 20 years. If he can earn an annual compound rate of 8 percent on his deposits, what will be the amount in the account upon retirement?

A. $19,636
B. $21,207
C. $91,524
D. $98,846

1 Answer

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Final answer:

James's individual retirement account will have approximately $91,524 upon retirement after making 20 annual deposits of $2,000 with an annual compound rate of 8%. We use the formula for the future value of an annuity to calculate this amount.

Step-by-step explanation:

To calculate the future value of James's individual retirement account (IRA) with 20 annual deposits of $2,000 at an annual compound rate of 8%, we use the future value of an annuity formula: FV = P × [(1 + r)^n - 1] / r, where P is the periodic payment, r is the interest rate per period, and n is the number of payments.

In this case, P = $2,000, r = 0.08 (8% expressed as a decimal), and n = 20.

FV = $2,000 × [(1 + 0.08)^20 - 1] / 0.08

Calculating the value inside the brackets first and then multiplying by $2,000:

FV ≈ $2,000 × 45.762

FV ≈ $91,524

The amount in the account upon retirement will be approximately $91,524, which corresponds to answer choice C.

User Munawar
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