Question

Jolene set up a retirement account. She arranged to have $350 taken out of each of her monthly checks; the account will earn 2.1 % interest compounded monthly. She just turned 33 and her ordinary annuity comes to term when she turns 60. Find the value of her retirement account at that time

Answer 1

$152,419.36

Explanation:

The future value of an ordinary annuity is given by the formula ...

FV = P((1 +r/12)^(12t) -1)/(r/12)

where P is the monthly payment, r is the annual interest rate, and t is the number of years.

Annuity value

For P = 350, r = 0.021, and t = 27 (years to retirement age), the value is ...

FV = 350((1 +0.021/12)^324 -1)/(0.021/12) ≈ $152,419.36

The value of Jolene's retirement account when she turns 60 will be $152,419.36.