Question

lisa plans to fund her individual retirement account (ira) with the maximum contribution of $5,500 at the end of each year for the next 30 years. if lisa can earn 11 percent on her contributions, how much will she have at the end of the thirtieth year? show your calculation.

Answer 1

Lisa plans to contribute $5,500 annually to her IRA over 30 years at an 11% return. Using the future value of an annuity formula, her IRA will be worth $3,210,154.75 by the end of the thirtieth year.

Step-by-step explanation:

Lisa plans to contribute the maximum annual amount of $5,500 to her individual retirement account (IRA) for the next 30 years with an 11 percent annual return. To calculate the future value of her IRA, we use the future value of an annuity formula:

FV = P * (((1 + r)^n - 1) / r)

where:

• FV is the future value of the annuity.
• P is the annual payment (contribution).
• r is the annual interest rate (expressed as a decimal).
• n is the number of years.

Substituting the given values we get:

FV = 5500 * (((1 + 0.11)^30 - 1) / 0.11)

FV = 5500 * (((1.11)^30 - 1) / 0.11)

Calculating this out:

FV = 5500 * ((8.0623 - 1) / 0.11)

FV = 5500 * (64.203 / 0.11)

FV = 5500 * 583.6645

FV = $3,210,154.75

At the end of the thirtieth year, Lisa will have $3,210,154.75 in her IRA if she earns an 11 percent return on her contributions.