Question

Bill plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 20 years. If Bill can earn 12 percent on his contributions, how much will he have at the end of the twentieth year?

Answer 1

The future value can be calculated using the excel formula-

Future value = FV(rate,nper,pmt,pv,type)

Rate is the interest rate per period = 12%

Nper is the total number of payment periods in an annuity=20years

Pmt is the payment made each period = $2000

pv is the present value, or a cash balance you want to attain after the last payment is made. we can skip this here.

Type is the number 0 or 1 and indicates when payments are due, We use 0 when payments are made at the end of the period and use 1 when payment is made at the begginning of the period = 0

FV(12%,20,2000,,0) = $144,104.88 will get accumulated at end of 20th year