Sharon decides to put $5,000 into her IRA at age of 25. She will continue to invest the same amount for the next 6 years and then stop contributing. Assume 10% annual return.
-How much money will Sharon have in her IRA after 6 years?

Question

Quizplus · Accepted Answer

Using the formula for future value of an annuity, we can calculate that Sharon will have $38,578 in her IRA after 6 years:

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

Where:
- FV = Future Value
- Pmt = Payment amount per period
- r = Rate of return per period
- n = Number of periods

In this case:
- Pmt = $5,000 per year
- r = 10% per year
- n = 6 years

FV = $5,000 x [(1 + 0.10)^6 - 1] / 0.10
FV = $5,000 x (1.10^6 - 1) / 0.10
FV = $5,000 x (1.771561 - 1) / 0.10
FV = $5,000 x 0.771561 / 0.10
FV = $38,578.05

Therefore, the best choice is C ($38,578).

Sharon Decides to Put $5,000 into Her IRA at Age