An individual retirement account (IRA) offers a risk-free option with a nominal

Question

An individual retirement account (IRA) offers a risk-free option with a nominal 6% interest rate, compounded monthly. You get paid two times per month (the 1st and the 15th of the month) and decide to invest $440 per pay period into the IRA. This is a situation where the payment periods occur more frequently than the compounding periods. Assume that interest is calculated only at the end of the month so that $440 invested at the beginning of the month earns the same amount of interest as $440 invested in the middle of the month. In other words, there is no benefit to investing $440 in the middle of the month versus the end of the month. With this assumption, what is the value of the IRA after 10 years.

please show how you got all values such as pmt etc.

Explanation / Answer

GIVEN

PAID TWO TIME PER MONTH 1ST AND 15TH OF THE MONTH

DAILY EDITION =$440

INTEREST RATE PER MONTH=6%

NUMBER OF YEAR TO GROW=10 YEARS

FORMULA OF COMPOUND INTEREST=(Principal + Interest) A = P(1 + r/n)nt

FUTURE VALUE     =    $2,224,613.76

TOTAL DEPOSITS= $1,605,560.00

INTEREST EARN=   $619,053.76

THE VALUE OF IRA AFTER 10 YEARS IS $2,224,613.76

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