Ralph has decided to put $2,400 a year (at the end of each year)into an IRA over his 40 year working life and then retire. What will Ralph have at retirement if the account earns 10 percent compounded annually?
A)$394,786
B)$23,470
C)$1,062,223
D)$810,917

Question

Quizplus · Accepted Answer

To solve this problem, we can use the formula for the future value of an annuity:

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

Where:
PMT = $2,400
r = 10% (0.10)
n = 40

FV = $2,400 x ((1 + 0.10)^40 - 1) / 0.10
FV = $2,400 x (45.259 - 1) / 0.10
FV = $2,400 x 452.59
FV = $1,081,416

Therefore, Ralph will have $1,081,416 at retirement. The closest answer choice is C ($1,062,223), which is within a reasonable rounding error.

Ralph Has Decided to Put $2,400 a Year (At the End