Question

At 50, Brian sets up an IRA, where he plans to deposit $12,000 at the end of each year until age 75. Find the amount of the annuity if he invests in a stock fund that yields 4% compounded annually.

Answer 1

Answer: the amount of the annuity is $501000

Step-by-step explanation:

We would apply the future value which is expressed as

FV = C × [{(1 + r)^n - 1}/r]

Where

C represents the yearly payments.

FV represents the amount of money

in your account at the end of 25 years.

r represents the annual rate.

n represents number of years or period.

From the information given,

r = 4% = 4/100 = 0.04

C = $12000

n = 75 - 50 = 25

Therefore,

FV = 12000 × [{(1 + 0.04)^25 - 1}/0.04]

FV = 12000 × [{2.67 - 1}/0.04]

FV = 12000 × 41.75

FV = $501000