Dan plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 10 years. If Dan can earn 10 percent on his contributions, how much will he have at the end of the tenth year?

Question

Quizplus · Accepted Answer

Using the formula for future value of an annuity:

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

Where: 
PMT = Payment (or contribution) per period 
r = interest rate per period 
n = number of periods

Substituting the given values: 
PMT = $2,000 
r = 10% = 0.1 
n = 10

FV = $2,000[((1 + 0.1)^10 - 1) / 0.1]

FV = $2,000[15.937]

FV = $31,874

Therefore, Dan will have $31,874 at the end of the tenth year.

Dan Plans to Fund His Individual Retirement Account (IRA) with the Maximum