Someone in the 15 percent tax bracket can earn 8 percent annually on his investments in a tax-exempt IRA account. What will be the value of a $10,000 investment after five years (assuming annual compounding)?
A) $6,805
B) $14,693
C) $15,528
D) $20,114
E) $50,000

Question

Quizplus · Accepted Answer

The value of a $10,000 investment after five years with an 8 percent annual return, compounded annually, is calculated using the formula for compound interest: A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount ($10,000), r is the annual interest rate (8% or 0.08), n is the number of times that interest is compounded per year (1, since it's annually), and t is the time the money is invested for in years (5). Plugging in the values: A = $10,000(1 + 0.08/1)^(1*5) = $10,000(1.08)^5 = $14,693.

Someone in the 15 Percent Tax Bracket Can Earn 8