Problema Solution
If the student purchases a $5000 Roth IRA when he is 25 years old and expects to earn an average of 5% per year compounded annually over 35 years (until he is 60), how much will accumulate in the investment?
Answer provided by our tutors
P = $5,000 the principle or present value
r = 0.05 or 5% the annual rate
t = 35 years the number of years or the number of compounding periods
A = the future value or the money that will accumulate
A = P(1 + r)^t
A = 5000(1 + 0.05)^35
A = $27,580.08
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$27,580.08 will accumulate in the investment.