Question

You plan to invest $2,000 in an individual retirement arrangement (IRA) at the end of year...

You plan to invest $2,000 in an individual retirement arrangement (IRA) at the end of year one that pays a stated annual interest rate of 8 percent. How much will you have in the account at the end of 10 years if interest is compounded monthly?

A. $4,835.93

B. $4,688.01

C. $4,237.98

D. $4,439.28

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Homework Answers

Answer #1

The amount is computed as shown below:

Future value = Present value (1 + r)n

r is computed as follows:

= 8% / 12 (Since interest is compounded monthly, hence divided by 12)

= 0.666666667% or 0.0066666667

n is computed as follows:

= 10 x 12 (Since interest is compounded monthly, hence multiplied by 12)

= 120

So, the amount will be as follows:

= $ 2,000 x (1 + 0.0066666667)120

= $ 4,439.28 Approximately

Feel free to ask in case of any query relating to this question

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