Dan Quayle plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 10 years.If Dan can earn 10 percent on his contributions, how much will he have at the end of the tenth year?
A)$12,290
B)$20,000.
C)$31,874.
D)$51,880.

Question

Quizplus · Accepted Answer

Using the formula for the future value of an annuity:

FV = PMT x [(1 + r)^n - 1]/r

PMT = $2,000
r = 10%
n = 10 years

FV = $2,000 x [(1 + 0.1)^10 - 1]/0.1
FV = $2,000 x [2.5937 - 1]/0.1
FV = $2,000 x 15.937
FV = $31,874

Therefore, Dan will have $31,874 at the end of the tenth year if he funds his IRA with $2,000 at the end of each year for the next 10 years and earns 10 percent on his contributions.

Dan Quayle Plans to Fund His Individual Retirement Account (IRA)