Elizabeth Brown is a sales executive at a Baltimore firm. She is 25 years old an

Question

Elizabeth Brown is a sales executive at a Baltimore firm. She is 25 years old and plans to invest $3,000 each year in an IRA account until she is 65 at which time she will retire (a total of 40 payments). If Elizabeth invests at the beginning of each year, and the IRA investment will earn 11.80 percent annually, how much will she have when she retires? Assume that she makes the first payment today. (Round factor values to 4 decimal places, e.g. 1.5212 and final answer to 2 decimal places, e.g. 15.25.)

Explanation / Answer

Future value of annuity due=(1+interest rate)*Annuity[(1+rate)^time period-1]/rate

=1.118*3000[(1.118)^40-1]/0.118

=$3000*811.3152

=$2,433,945.60

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