You just graduated and landed your first job in your new career. You remember th

Question

You just graduated and landed your first job in your new career.

You remember that your favorite finance professor told you to begin the painless job of saving for retirement as soon as possible, so you decided to put away $2,000 at the end of each year in a Roth IRA.

Your expected annual rate of return on the IRA is 7.5%.

How much will you accumulate at retirement after 40 years of investing ***(note: this may assume that you are even retiring early)*** ?

which is best choice:
A). $1,088,632
B). $94,426
C). $247,921
D). $454,513

Explanation / Answer

Present value of all future deposits = $2,000/(1+ 7.5%) + $2,000/(1+ 7.5%)^2...$2,000/(1+ 7.5%)^40 = $25,188.82 Future value of deposits = $25,188.82*(1+ 7.5%)^40 = $454,513.09 Money accumulated at retirement after 40 years of investing = $454,513.09

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