Bill plans to fund his individual retirement account (IRA) with the maximum contribution of $800 at the end of each month for the next 35 years. If Bill can earn 12 percent on his contributions, how much will he have at the end of the 35th year?
The amount of money at the end of 35th year is calculated by using the Future Value of an Annuity Regular formula
The Future Value of annuity regular is calculated by using the following formula
Future Value of Annuity = P x [{(1+ r)n - 1} / r ]
Where, Monthly Payments (P) = $800 per month
Monthly Interest Rate (r) = 1% [12% / 12 Months]
Number of months (n) = 420 Years [35 Years x 12Months]
Future Value of Annuity = P x [{(1+ r)n - 1} / r ]
= $800 x [{(1 + 0.01)420 – 1} / 0.01]
= $800 x [(65.30959 – 1) / 0.01]
= $800 x [64.30959 / 0.01]
= $800 x 6430.959471
= $51,44,767.58
“Therefore, the amount of money at the end of 35th year in his individual retirement account (IRA) would be $51,44,767.58”
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