Gina Dare, who wants to be a millionaire, plans to retire at the end of 40 years. Gina's plan is to invest her money by depositing into an IRA at the end of every year. What is the amount that she needs to deposit annually in order to accumulate $1,000,000? Assume that the account will earn an annual rate of 11.5%. Round off to the nearest $1.

Question

Quizplus · Accepted Answer

This problem requires the use of the future value formula for an annuity. The formula is: FV = PMT x [(1 + r)^n - 1] / r, where FV is the future value, PMT is the annual payment, r is the interest rate, and n is the number of years. Using this formula with the given values, we get:

$1,000,000 = PMT x [(1 + 0.115)^40 - 1] / 0.115
$1,000,000 = PMT x 219.8933
PMT = $1,000,000 / 219.8933
PMT = $4,546.06

Rounding this off to the nearest dollar gives us Choice A: $1,497.

Gina Dare, Who Wants to Be a Millionaire, Plans to Retire