Question

Bill plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 20 years. If Bill can earn 12 percent on his contributions, how much will he have at the end of the twentieth year?

A)

$14,938

B)

$40,000

C)

$19,292

D)

$144,104

Answer 1

Bill's individual retirement account will have an amount close to $85,266.67 after 20 years of making maximum annual contributions of $2,000, given a 12% annual return. The provided options do not match this calculation.

Step-by-step explanation:

Bill plans to contribute $2,000 at the end of each year to his individual retirement account (IRA) for 20 years, with an annual return of 12%. To calculate the future value of these contributions, we will use the future value of an annuity formula:

FV = P * [((1 + r)^n - 1) / r]

Where FV is the future value of the annuity, P is the payment amount per period, r is the interest rate per period (as a decimal), and n is the number of periods.

In this formula: P = $2,000, r = 0.12, and n = 20. Plugging these values into the formula, we get:

FV = 2000 * [((1 + 0.12)^20 - 1) / 0.12] = 2000 * [(6.116 - 1) / 0.12] = 2000 * [5.116 / 0.12] = 2000 * 42.6333 = $85,266.67.

Thus, the correct answer would be an amount close to $85,266.67, which is not listed in the provided options. There may have been a change in the IRA contribution limits or the question could contain a typo.