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19 December, 07:16

You are to make monthly deposits of $875 into a retirement account that pays an APR of 9.5 percent compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 34 years?

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  1. 19 December, 10:22
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    In 34 years time retirement account will accumulate = $106,098.21

    Explanation:

    The value of an annuity investment at a certain rate of interest compounded for a definite period of time can be worked as follows:

    Future Value = A * (1 - (1+r) ^ (-34)

    r - monthly interest rate = 9.5/12 = 0.79%

    A - 875,

    r = 0.79%,

    n = 34 * 12 = 408

    FV = 875 * (1 - (1.0079) ^ (-408)) / 0.0079

    = 875 * 121.2550968

    = 106,098.21

    In 34 years time retirement account will accumulate = $106,098.21
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