At age25 , someone sets up an IRA (individual retirement account) with an APR of 7%. At the end of each month he deposits
$75 in the account. How much will the IRA contain when he retires at age 65? Compare that amount to the total deposits made over the time period.
After retirement the IRA will contain $
.
This is the formula you would use to find the FV of the IRA at 65.
FV=P{[1 + R]^N - 1/ R}
FV =$75 x {[1 + 0.07/12]^(40*12) - 1 / (0.07/12)}
FV =$196,861.00 - This is what the balance in the IRA should be after 40 years.
Total deposits should be =$75 x 40 years x 12 months =$36,000
$196,861 - $36,000 =$160,861 was interest earned over 40-year period.
P.S. Do the math in the above formula and you should get the same answer that I got!!.
