Question

You just graduated and landed your first job in your new career. You remember that your favorite finance professor told you to begin the painless job of saving for retirement as soon as possible. You decide to put away $5,000 at the end of each year in a Roth IRA. Your expected annual rate of return on the IRA is 6%. The amount you will have accumulated at retirement after 40 years of investing is closest to:

Answer 1

The answer is $7,73,810

Step-by-step explanation

Solution

To solve this question, we use a table or tabular form shown below:

Rate (I) Rate per period 0.06

NPER Total no of payments 40

PMT Payment per second $5,000

PV Present Value $0.00

TYPE Ending (0), Beginning (1) 0

Future value $ 7,73,810

(-FV (rate, nper, pmt, pv, type))

Answer 2

Money accumulated at retirement after 40 year = $773,809.83

Explanation :

As per the data given in the question,

Present value of future deposits = $5,000 ÷ (1+6%) + $5,000 ÷ (1+6%)^2+... +$5,000 ÷ (1+6%)^40

= $75,231.48

Future value of deposit is

= Present value × (1 + interest rate)^number of years

= $75,231.48 × (1+6%)^40

= $773,809.83

Hence, Money accumulated at retirement after 40 year = $773,809.83