Question

Someone in the 15 percent tax bracket can earn 10 percent annually on his investments in a tax-exempt IRA account. What will be the value of a $16,000 investment in 5 years? 10 years? 20 years? You may use Appendix C to answer the questions. Do not round intermediate calculations. Round your answers to the nearest dollar.

Answer 1

A. $60,653

B. $98,313

C. $136,217

Step-by-step explanation:

The formula that is used for calculating the annuity value is as under:

Annuity Value in "n" years = Present Value * (1 - (1 + r)^-n) / r

For 5 years:

Annuity Value in "5" years = $16,000 * (1 - (1 + 10%)^-5) / 10%

= $60,653

For 10 years:

Annuity Value in "10" years = $16,000 * (1 - (1 + 10%)^-10) / 10%

= $98,313

For 20 years:

Annuity Value in "20" years = $16,000 * (1 - (1 + 10%)^-5) / 10%

= $136,217