You open an individual retirement account (IRA) with a mutual fund and contribute $1,000 into the account each year. How much will be in the account after 20 years if the investment earns 7% annually

The worth of the investment after 20 years = $40,995.5  

Explanation:

The equal annual deposit can be worked out using the future value of an ordinary annuity formula.

The worth of the investment after 20 years can be worked out using the future value of an ordinary annuity.

An an annuity is a series of equal cash flows receivable or payable  for certain number years.

Future Value of an ordinary annuity (FVOA). The represents the total sum of that would accrue where a series of annual cash flow (each occurring at the end of the year) is compounded at a particular rate. It can be determined as:  

FV= A × ( (1+r)^n - 1)/r).  

FV- Future value

A- annual cash flow

R- rate of interest

n-number of years

FV - ?

A- 100

r- 7%

n- 20

FV = 1,000× (1.07^20 - 1)/0.07 =  40,995.5  

The worth of the investment after 20 years = $40,995.5  

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