Problema Solution
At age 20, someone sets up an IRA (individual retirement account) with an APR of 8%. At the end of each month he deposits $35 in the account. How much will the IRA contain when he retires at age 65? Compare that amount to the total deposits made over the time period.
Answer provided by our tutors
You save for 65 - 20 = 45 years, so the value of the IRA is:
A = 35 *[((1 + 0.08/12)^(12*45) − 1)/(0.08/12)]
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click here to see the calculation for A
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A = $184,608.90
Since you deposit $35 each month for the 45 years, your will have deposited a total of $35 × 12 × 45 = $18,900.00 or around one tenth of the final value of IRA.