Question
1. You deposit $2,000 at the beginning of each year for 40 years into an individual retirement account (IRA). You expect to earn a 5
1. You deposit $2,000 at the beginning of each year for 40 years into an individual retirement account (IRA). You expect to earn a 5 percent annual rate of return.
a. How much money do you expect to have in the IRA 40 years from now? [1 point]
b. You expect to retire 40 years from now, at which point you will stop contributing to your IRA and instead make equal annual beginning-of-year withdrawals for a 25-year period. If you continue to earn a 5 percent annual return on your IRA balances and are content to draw down the balance to zero, how large would this annual withdrawal be? [1 point]
c. Assume now that you are not starting from scratch; you have already accumulated $20,000 in your IRA as a result of past contributions and investment returns. If you contribute a further $2,000 at the beginning of each year for the next 40 years and earn a 5 percent annual return, how much money will be in the IRA in 40 years? [1 point]
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