Question

Jennifer Davis is a sales executive at a Baltimore firm. She is 25 years old and plans to invest $3,100 each year in an IRA account until she is 65 at which time she will retire (a total of 40 payments). If Jennifer invests at the beginning of each year, and the IRA investment will earn 11.40 percent annually, how much will she have when she retires? Assume that she makes the first payment today. (Round factor values to 4 decimal places, e.g. 1.5212 and final answer to 2 decimal places, e.g. 15.25.)

Future value of investment

$

Answer 1

Future Value of an Annuity Due
= C*[(1+i)^n-1]/i] * (1+i)
Where,
c= Cash Flow per period
i = interest rate per period
n=number of period
= $3100[ (1+0.114)^40 -1 /0.114] * (1 +0.114)
= $3100[ (1.114)^40 -1 /0.114] * 1.114
= $3100[ (75.0598 -1 /0.114] * 1.114
= $22,43,493.43