## Related questions with answers

Barry learned in an online investment course that he should start investing as soon as possible. He had always thought that it would be smart to start investing after he finishes college and when his salary is high enough to pay the bills and to have money left over. He projects that will be $5-10$ years from now. Barry wants to compare the difference between investing now and investing later. A financial advisor who spoke to Barry suggested that a Roth IRA (Individual Retirement Account) would be a good investment for him to start. (Note: When table values do not include the information you need, use the formula $F V=\$ 1(1+R)^N$ where $R$ is the period rate and $N$ is the number of periods.)

If Barry purchases a $\$ 2,000$ Roth IRA when he is $25$ years old and expects to earn an average of $6 \%$ per year compounded annually over $35$ years (until he is $60$), how much will accumulate in the investment?

Solution

VerifiedWe first solve for unknown variables using the given.

$\begin{aligned} \text{Interest Periods} &=\text{Number of Years} \times \text{Number of Interests Period per Year}\\ &=35(1)\\ &=35 \end{aligned}$

$\begin{aligned} \text{Periodic Interest Rate} &=\frac{\text{Annual Interest Rate}}{\text{Number of Interests Period per Year}} \\\ & =\frac{6\%}{1}\\ &=6\% \end{aligned}$

Using the formula $FV = \$1 (1+ R)^N$, we identify the future value of $1.00

$\begin{aligned} FV= \$1 (1+ .06)^{35}=7.686086792 \end{aligned}$

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