Question

A 45-year-old man puts $2500 in a retirement account at the end of each quarter until he reaches the age of 66, then makes no further deposits. If the account pays 4% interest compounded quarterly, how much will be in the account when the man retires at age 71? There will be $ in the account.

Answer 1

Answer: The man will make deposits for 66 - 45 = 21 years, or 21 x 4 = 84 quarters.

The quarterly interest rate is 4% / 4 = 1%.

Let's use the formula for the future value of an annuity:

FV = PMT x ((1 + r)^n - 1) / r

where FV is the future value of the annuity, PMT is the periodic payment, r is the interest rate per period, and n is the number of periods.

In this case, PMT = $2500, r = 1%, and n = 84. Substituting these values into the formula, we get:

FV = $2500 x ((1 + 0.01)^84 - 1) / 0.01

FV = $2500 x (5.409 - 1) / 0.01

FV = $2500 x 540.9

FV = $1,352,250

Therefore, there will be $1,352,250 in the account when the man retires at age 71.