Question
Asked Feb 11, 2019
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A self-employed person deposits $3,000 annually in a retirement account (called a Keogh or H.R. 10 plan) that earns 8 percent. How much will be in the account when the individual retires at the age of 65 if the savings program starts when the person is age 40?

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Expert Answer

Step 1

Amount deposited annually in a retirement account, A = $ 3,000

Since this is deposited every year, this is an annuity.

Interest rate = R = 8% per annum

Time period = Age when you retire - Current age = 65 - 40 = 25 years

Step 2

Balance accumulated in the account= FV of annuity A over 25 years = FVA = (A / R) x [(1 + R)T - 1} = ($ 3,000 / 8%) x [(1 + 8%)25 - 1] = $ 219,317.82 

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