Asked by Nitin Channa on Jun 05, 2024
Verified
Terri and Larry plan to invest $5,000 at the end of each year in an individual retirement account earning a rate of return of 11% compounded annually. What will be the value of the account after 15 years?
A) $119,864
B) $172,027
C) $198,215
D) $214,739
E) $359,543
Compounded Annually
Interest on an investment that is calculated once a year on the principle plus any previously earned interest.
Individual Retirement Account
A retirement savings plan that offers tax advantages for individuals to allocate funds for their retirement.
Invest
To allocate money in the expectation of some benefit in the future.
- Achieve an understanding and perform calculations to find out the future values of periodic-contributions-based investments.
Verified Answer
PM
pedro martinezJun 12, 2024
Final Answer :
B
Explanation :
The value of the account after 15 years can be calculated using the future value of an annuity formula: FV = P * [((1 + r)^n - 1) / r], where P is the payment amount, r is the annual interest rate, and n is the number of periods. Plugging in the values: FV = $5,000 * [((1 + 0.11)^15 - 1) / 0.11] = $172,027.
Learning Objectives
- Achieve an understanding and perform calculations to find out the future values of periodic-contributions-based investments.