How much will you have in a Roth IRA if you invest $5,000 a year for 35 years if money earns 6% and you make the investment at the beginning of each year?
A)$474,181.61
B)$451,601.54
C)$590,604.33
D)$557,173.89

Question

Quizplus · Accepted Answer

Using the formula for future value of an annuity:

FV = PMT * ((1 + r)^n - 1) / r

where PMT is the annual payment (in this case, $5,000), r is the annual interest rate (6%), and n is the number of years (35).

FV = 5000 * ((1 + 0.06)^35 - 1) / 0.06
FV = 5000 * (131.5014) = $657,507

However, this calculation assumes that the annual payments are made at the end of each year. Since the question specifies that the payments are made at the beginning of each year, we need to adjust the calculation by multiplying the result by (1 + r):

FV = 657507 * (1 + 0.06) = $697,940

Therefore, the answer is C, $590,604.33 is incorrect as it is lower than the correct answer, and B and D are also incorrect.

How Much Will You Have in a Roth IRA If