When Sam was 16, he got an after school job at his parents' Mexican restaurant. His parents told him that if he put some of his earnings into an IRA, they would contribute an equal amount to his IRA. That year, and every year thereafter, he deposited $600 into his IRA. When he turned 21, his parents stopped contributing, but Sam increased his annual deposit to $1,200 and continued depositing that amount annually until he retired at the age of 65. His IRA paid 5.1% interest. Find the future value if this account.

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Asked Dec 11, 2019
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When Sam was 16, he got an after school job at his parents' Mexican restaurant. His parents told him that if he put some of his earnings into an IRA, they would contribute an equal amount to his IRA. That year, and every year thereafter, he deposited $600 into his IRA. When he turned 21, his parents stopped contributing, but Sam increased his annual deposit to $1,200 and continued depositing that amount annually until he retired at the age of 65. His IRA paid 5.1% interest. Find the future value if this account.

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Expert Answer

Step 1

The future value is the value of the amount that the person will have in its accounts if the regular payment is made till some definite time period.

Step 2

Given:

Interest rate is 5.1%

Annual deposit is $1200

No. of years is (65-16=49) years

Step 3

Formula to calculate future valu...

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(1+i)* – -1 FV annuity = Annual deposit i 49 (1+.051)** –1 = $1200- .051 = $1200 x 204.7612 = $245, 713.4236

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