Question

You currently have $150,000 in an IRA designated for retirement. If you save an additional $100 at the end of every month and expect to earn an annual return of 12 percent, how much do you expect to have in the IRA in 10 years?

Answer 1

$518,061.90

Step-by-step explanation:

The value of the retirement savings at retirement date is the future value of both its current balance of $150,000 and future value of $100 per month for 10 years compounded at the monthly rate of return

FV=PV*(1+r)^n+ monthly savings*(1+r)^n-1/r

PV=$150,000

r=monthly rate of return=12%/12=1%=0.01

monthly savings=$100

n=number of monthly savings in 10 years=10*12=120

FV=$150000*(1+0.01)^120+$100*(1+0.01)^120-1/0.01

FV=$150000*(1.01)^120+$100*(1.01)^120-1/0.01

FV=$150000*3.30038689+$100*(3.30038689-1)/0.01

FV=$150000*3.30038689+$100*2.30038689/0.01

FV=$495,058.03+$ 23,003.87

FV=$518,061.90