Question

John is 48 years old. He is planning on retireing when he is 65. He has opened an IRA with an APR of 3.5% compounded daily. If he makes daily deposits of $750.00 to the account. How much will he have in the account when he is ready to retire? Use the formula on page 439 example #1 a $2,250,650 b $6,422,659 c $13,422 d $6,358,659 e $52,801 f $6,422 g $7,422,659 h $68,537 i $1,222,659

Answer 1

The amount of money that John would have in his account when he is ready to retire is $6,351,400.21.

How much would be in the retirement account?

The formula that can be used to determine the future value of the annuity is

Future value = Daily deposit x annuity factor

Annuity factor = {[(1+r)^n] - 1} / r

Where:

• r = 3.5 / 365 = 0.0096%
• n = (65 - 48) x 365 = 6205

Annuity factor = [(1.000096^6205) - 1] / 0.000096 = $8468.53

Future value = 750 x $8468.53 = $6,351,400.21

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