The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. David, a high school math teacher, wants to set up an IRA account into which he will deposit $2,000 per year. He plans to teach for 20 more years and then retire. If the interest on his account is 7% compounded annually, how much will be in his account when he retires?
A) $81,990
B) $74,458
C) $ 4,800
D) $21,118

Question

Quizplus · Accepted Answer

The future value of an annuity formula is used here: FV = Pmt * [(1 + r)^n - 1] / r. Substituting the given values: Pmt = $2,000, r = 0.07, n = 20, the calculation gives approximately $81,990.

The Solution to This Problem Requires Time Value of Money