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Chapter 12: Q. 185 (page 1200)

In the following exercises, solve the problem.

Berenice just got her first full-time job after graduating from college at age 30. She decided to invest $500 per quarter in an IRA (an annuity). The interest on the annuity is 7% which is compounded quarterly (4 times a year). How much will be in the Berenice鈥檚 account when she retires at age 65?

Short Answer

Expert verified

The amount will be approximately$295581.88

Step by step solution

01

Step 1. Write the given information.

The information given is:

Principal,P=500

Number of times in a year,n=4

Interest rate,r=0.07

At the time,t=35

02

Step 2. Use the formula for the amount, A compounded 4 times in a year. 

For principal, P invested at the end of compounding period, n times a year at interest rate, r gives amount A as:

A=P1+rnnt-1rn

03

Step 3. Calculate the amount A.

So,

A=5001+0.0744脳35-10.074A=5001.0175140-10.0175A鈮�295581.88

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