Question

In: Finance

Meagan invests $1,200 each year in an IRA for 12 years in an account that earned...

Meagan invests $1,200 each year in an IRA for 12 years in an account that earned 5% compounded annually. At the end of 12 years, she stopped making payments to the account, but continued to invest her accumulated amount at 5% compounded annualy for the next 11 years.

a.) What was the value of the IRA at the end of 12 years?

b.) What was the value of the investment at the end of the next 11 years?

Expert Solution

As the question is silent about whether Meagan invest $ 1,200 each year at the beginning or end of a year thus, we will calculate value of Meagan in both cases for better understanding.

Please refer below spreadsheet for calculations and answer.

Formula reference -

We can also calculate value of IRA manually through following formula

Future value of constant investment for certain period at certain rate

where,

FV = future value of Investment

CI = constant annual investment

i = interest rate

n = period

Please note = use period as (n-1) for investment made at end of each year.

a. Value of Megan investment at the end of 12 years (assuming investment at beginning of each year)

Future Value of an Investment for certain period and rate of interest.

where,

FV = future value of Investment

I = Initial Investment

i = interest rate

n = period

b. Value of Meagan investment at end of next 11 years

jeff jeffy answered 1 year ago

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