Ruben invested $1700 per year in an IRA each year for 5 years earning 13% compounded...

Ruben invested $1700 per year in an IRA each year for 5 years earning 13% compounded annually. At the end of 5 years he ceased the IRA payments, but continued to invest his accumulated amount at 13% compounded annually for the next 4 years. a) What was the value of his IRA at the end of 5 years? b) What was the value of the investment at the end of the next 4 years? Answer = $

Expert Solution

a)Value of IRA at end of 5 years = Amount of investment *FVA13%,5

= 1700 * 6.48027

= $ 11016.46 (rounded to 11016)

**Find future value annuity factor from future value annuity table (ordinary) at 13% for 5 years or using the formula [(1+i)^4+(1+i)^3+.....(1+i)^1 + 1]

**Assuming investments are made end of period

b)Value of investment at end of year 4 = Value of IRA at end of 5 years * FVF13%,4

= 11016.46 * 1.63047

= 17962.01 (rounded to 17962)

**Find future value factor from table at 13% for 4 years or using the formula (1+i)^n

jeff jeffy answered 6 months ago

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