Question

You annually invest $2,000 in an individual retirement account (IRA) starting at the age of 30 and make the contributions for 15 years. Your twin sister does the same starting at age 35 and makes the contributions for 30 years. Both of you earn 8 percent annually on your investment. What amounts will you and your sister have at age 65? Use Appendix A and Appendix C to answer the question. Round your answers to the nearest dollar.
1. Amount on your account: $  
2. Amount on your sister's account: $  

3. Who has the larger amount at age 65?
-Select-You have or Your sister has, the larger amount.

Answer 1

1.
Calculation of future value at age 45:

Rate = 8%

Nper = 15

PMT = 2000

PV = 0

Future value can be calculated by using the following excel formula:
=FV(rate,nper,pmt,pv)
=FV(8%,15,-2000,0)
= $54,304.23

Calculation of future value at age 65:

Rate = 8%

Nper = 65 - 45 = 20

PV = 54,304.23

PMT = 0

Future value can be calculated by using the following excel formula:
=FV(rate,nper,pmt,pv)
=FV(8%,20,0,-54304.23)
= $253,110.

Amount on your account = $253,110

2.

Calculation of amount on your sister's account:

Rate = 8%

Nper = 30

PMT = 2000

PV = 0

Future value can be calculated by using the following excel formula:
=FV(rate,nper,pmt,pv)
=FV(8%,30,-2000,0)
= $226,566

Amount on your sister's account = $226,566

3.
You have the larger amount.