Question

Ana is retiring next year from the school that she has taught at for the last 25 years. Her pension pays a monthly salary of $1,562.32. She also receives a monthly income from an IRA that she has made regular monthly payments, in the amount of $230.32, for the last 15 years. If Ana plans on using her pension and the funds from her IRA as her primary source of income for the next 10 years, determine Ana’s monthly income given that her IRA compounds interest at 2.3% monthly. Round to the nearest cent.

a.
$2,024.02
b.
$1,887.42
c.
$461.70
d.
$325.10

Answer 1

The correct answer is (a) $2,024.02.

To calculate Ana's monthly income, we need to first calculate the future value of her IRA. We can use the formula:

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

Where:
PMT = $230.32 (the regular monthly payment)
r = 0.023 (the monthly interest rate)
n = 10 * 12 = 120 (the number of months)

FV = $230.32 * [(1 + 0.023)^120 - 1] / 0.023 = $38,674.62

Now, we can calculate Ana's total monthly income:

Total monthly income = Pension + IRA income
Total monthly income = $1,562.32 + ($38,674.62 / 120)
Total monthly income = $2,024.02

Therefore, the answer is (a) $2,024.02.