Question 278236: When James Baldwin starts his first job after he finished college, he opened an individual retirement account (IRA). He plans to contribute $3500 per year for 38 years until he reaches age 60. He hopes to earn an average annual percentage rate of 7% over the 38-year period. If James contributes to his IRA at the rate that he plans, what will be the future value of his account when he is 60 years old?
This is my equation:
F = 3500 [ ((1+0.07)^38 - 1) / 0.07 ]
Is this correct? I don't understand the interest, is it always in years or in months? Do I have to divide the interest (0.07) by 12? Do I have to multiply 38 by 12? I'm confused.
Thank you!
Answer by stanbon(75887)   (Show Source):
You can put this solution on YOUR website! When James Baldwin starts his first job after he finished college, he opened an individual retirement account (IRA). He plans to contribute $3500 per year for 38 years until he reaches age 60. He hopes to earn an average annual percentage rate of 7% over the 38-year period. If James contributes to his IRA at the rate that he plans, what will be the future value of his account when he is 60 years old?
This is my equation:
F = 3500 [ ((1+0.07)^38 - 1) / 0.07 ]
Is this correct? I don't understand the interest, is it always in years or in months? Do I have to divide the interest (0.07) by 12? Do I have to multiply 38 by 12?
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Since money is compounded each month divide the yearly rate by 12.
Since the money is compounded 12 times each year the exponent must
be 12*38
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F(38) = 3500[(1+(0.07/12))^(12*38) - 1]/(0.07/12)
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Cheers,
Stan H.
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