Question

$____________3. Your father wishes to retire in 27 years. If he can invest $2,000 per year into an Individual Retirement Account (IRA) how much will he have in this account when he retires if the money accumulates at an annual interest rate of 7.5% compounded annually?

Answer 1

Given information is as follows

Yearly investment is $ 2,000

Annual interest rate (r) = 7.5 %

Time period (n) = 27 years

Note :

It is assumed that investments are made at the beginning of the year starting from today.

Calculation of amount that he has at the time of retirement ;

Future value = Yearly investment * Future value annuity factor at r % for n period

= 2,000 * FVAF at 7.5 % for 27 years

= 2000 * 86.68

= $ 1,73,360

Amount in his account after retirement is $ 1,73,360