Two sisters each open IRAs in 2011 and plan to invest $3,000 per year for the next 30 years.Mary makes her first deposit on January 1,2011,and will make all future deposits on the first day of the year.Jane makes her first deposit on December 31,2011,and will continue to make her annual deposits on the last day of each year.At the end of 30 years,the difference in the value of the IRAs (rounded to the nearest dollar),assuming an interest rate of 7% per year,will be
A) $19,837.
B) $12,456.
C) $6,300.
D) $210.

Question

Quizplus · Accepted Answer

Mary's IRA will earn interest for one additional year on each deposit compared to Jane's IRA, due to her making deposits at the beginning of each year. Over 30 years, with a 7% annual interest rate, this difference in compounding timing results in a significant difference in the final value of their IRAs.

Two Sisters Each Open IRAs in 2011 and Plan to Invest