Dan plans to fund his individual retirement account (IRA)by contributing $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 x ((1+i)^n - 1)/i)

where PMT = payment (in this case, $2,000), i = interest rate per period (10% per year), and n = number of periods (10 years).

FV = (2000 x ((1+0.10)^10 - 1)/0.10)
FV = $31,875

Therefore, Dan will have $31,875 at the end of the tenth year.

Dan Plans to Fund His Individual Retirement Account (IRA)by Contributing