An individual retirement account, or IRA, earns tax-deferred interest and allows the owner to invest up to $5000 each year. Joe and Jill both will make IRA deposits for 30 years (from age 35 to 65) into stock mutual funds yielding 9.8%. Joe deposits $5000 once each year, while Jill has $96.15 (which is 5000/52) withheld from her weekly paycheck and deposited automatically. How much will each have at age 65? (Round your answer to the nearest cent.)

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Eli

22 October, 13:48

An individual retirement account, or IRA, earns tax-deferred interest and allows the owner to invest up to $5000 each year. Joe and Jill both will make IRA deposits for 30 years (from age 35 to 65) into stock mutual funds yielding 9.8%. Joe deposits $5000 once each year, while Jill has $96.15 (which is 5000/52) withheld from her weekly paycheck and deposited automatically. How much will each have at age 65? (Round your answer to the nearest cent.)

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Chelsea Hines · Answer 1

Instructions are below.

Explanation:

Giving the following information:

Jill:

Weekly deposit = $96.15

The number of weeks = 30*52 = 1,560

Interest rate = 0.098/52 = 0.00189

Joe:

Annual deposit = $5,000

Number of years = 30 years

Interest rate = 9.8%

To calculate the final value of Jill and Joe, we need to use the following formula:

FV = {A*[ (1+i) ^n-1]}/i

A = weekly/annual deposit

Jill:

FV = {96.15 * [ (1.00189^1,560) - 1]} / 0.00189

FV = $916,853.88

Joe:

FV = {5,000*[ (1.098^30) - 1]} / 0.098

FV = $791,953.50