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A Roth Individual Retirement Account allows you to draw a fixed amount that is not taxed. The maximum amount that an individual can contribute annually to a Roth IRA is $5,000. Determine the future value of such an account given that the annual percent rate is 1. 2%, and an annual payment of $2,675. 32 is made at the end of each year for 30 years. Round to the nearest cent. A. $95,245. 67 b. $95,340. 91 c. $97,074. 97 d. $95,923. 88.

Sagot :

Since the deposit is made at the end of each year, the relevant formula to use is the formula for calculating the Future Value (FV) of an Ordinary Annuity stated as follows:

FV = M * (((1 + r)^n - 1) / r) ................................. (1)

Where:

FV = Future value after 30 years = ?

M = Annual payment = $2,675.32

r = Annual interest rate = 1.2%, or 0.012

n = Number of years = 30

Substituting the values into equation (1), we have:

FV = $2,675.32 * (((1 + 0.012)^30 - 1) / 0.012)  

FV = $2,675.32 * 35.8551048895342

FV = $95,923.88

Therefore, the future value of such an account d. $95,923. 88.

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