Question

Faith wants to retire in 35 years. She makes annual contributions to a Roth IRA in the amount of $3,950. She is taxed at 35% today, but anticipates that will change to 25% in her retirement. If the average annual rate of return on the account is 6.3%, what is the net value of Faith's IRA account when she retires?

A. $305,053.33

B. $351,984.61

C. $420,925.32

D. $434,750.32

Please help!!!!

Answer #1

Future Value of an Ordinary Annuity | ||||

= C*[(1+i)^n-1]/i | ||||

Where, | ||||

C= Cash Flow per period | ||||

i = interest rate per period | ||||

n=number of period | ||||

= $3950[ (1+0.063)^35 -1] /0.063 | ||||

= $3950[ (1.063)^35 -1] /0.063 | ||||

= $3950[ (8.4852 -1] /0.063] | ||||

= $469,312.82 | ||||

Net Value after tax = $469312.82*(1- 0.25) | ||||

$ 351,984.61 | ||||

Correct Option = B.$351984.61 |
||||

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