ASSIGNMENT # 5: Introduction to Financial Mathematics II (1) Ms. Woodmaker sets
ID: 3145752 • Letter: A
Question
ASSIGNMENT # 5: Introduction to Financial Mathematics II (1) Ms. Woodmaker sets up an individual retirement account (IRA) with a local bank that guarantees an annual rate of 7.2%compounded annually. She starts the account at age 30 and retires at age 65 ana (a) If Ms. Woodmaker plans toput $20MLinto the account each year, what amount will have accumulated in the nskm account? Also calculate how much total interest she will earn. CARS (b) If Ms. Woodmaker wants to have $500,000 at age 65, how much should she put into the account annually?Explanation / Answer
a) Let the amount accumulated be A
A= P (((1+r)n-1)/r)
= 2000 (((1+0.072)n-1)/0.072)
= 2000* 144.4125
Amount accumulated = 288825$
Interest earned= P(1+r)n
= 2000(1.072)35
= 22795.41$
b) She wants to save $500000 at the age of 65.
150000= X{[(1+0.072)35 -1]/[0.072]}
150000= X* 144.4125
X= 1038.69
she should put $1038.69 annually.