Shaylea, age 22, just started working full-time and plans to deposit $4800 annua
ID: 2784100 • Letter: S
Question
Shaylea, age 22, just started working full-time and plans to deposit $4800 annually into an IRA earning 7 percent interest compounded annually. Deposits will be made at the end of each year. How much would she have in 20 years, 30 years, and 40 years? If she changed her investment period and instead invested $400.00 monthly and the investment also changed to monthly compounding, how much would she have after the same three time periods? Comment on the differences over time
Q1-With monthly investments and monthly compounding interest, after 30 years, Shaylea would have ?
Q2-With monthly investments and monthly compounding interest, after 40 years, Shaylea would have ?
Explanation / Answer
Amount Accumulated 20 years 30 years 40 years Annual Payments $4,800 $4,800 $4,800 Rate 7.00% 7.00% 7.00% Period 20 30 40 Future Value = (using excel) $196,778.36 $453,411.77 $958,248.54 FVIFA Factor 40.995 94.461 199.635 Future Value = = Annual Payments x FVIFA (7%,n) $196,776 $453,412.8 $958,248 Amount Accumulated 20 years 30 years 40 years Monthly Payments $400 $400 $400 Rate = 7%/12 0.58% 0.58% 0.58% Period x 12 months 240 360 480 Future Value = $208,845.57 $487,988.4 $1,049,925.36 The future value of money will be more for compounded monthly deposit as compared annual deposit compounded annually.
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