Answer:
Future value of John's investment
FV = A<u>(1+r)n+1 - (1+r)
</u>
r
Fv = $3,000<u>((1 + 0.07)30+1 - (1 +0.07))</u>
0.07
FV = $3,000<u>((1.07)31 - (1.07)</u>
0.07
FV = $3,000 x 101.0730414
FV = $303,219
Future value of Bill's investment
FV = A<u>((1 + r)n - 1)</u>
r
FV = $3,000 <u>((1 + 0.07)</u>30 - 1)
0.07
FV = $3,000<u>((1.07)30 - 1)
</u>
0.07
FV = $3,000 x 94.46078632
FV = $283,382
The difference in the value of IRAs
= $303,219 - $283,382
= $19,837
The correct answer is A
Explanation:
In the first case, we need to apply future value of annuity due formula since deposits are made at the beginning of each year.
In the second case, we need to apply future value of an ordinary annuity formula since deposits are made at the end of each year.
