Sally makes deposits into a retirement account every year from the age of 30 until she retires at age 65. a) If Sally deposits $ 1100$1100 per year and the account earns interest at a rate of 9 %9% per year, compounded annually, how much does she have in the account when she retires? b) How much of that total amount is from Sally's deposits? How much is interest?

a)

Balance of account at retirement = $237,281.83

b)

Total Deposited amount = $38,500

Interest Amount = $198,781.83

Explanation:

A fix periodic payments for the specific period of time is the annuity payment. Deposit of $1,100 per year in retirement account is annuity payment.

a)

We can calculate the balance of account on retirement by using following formula

Future Value of Annuity = P x ( 1 + r )^n - 1 / r

Where

P = Periodic payments = $1,100

r = 9%

n = 65 years - 30 years = 35 years

Placing values in the formula

Balance of account at retirement = $1,100 X ( 1 + 9% )^35 - 1 / 9%

Balance of account at retirement = $237,281.83

b)

Total Deposited amount = $1,100 x 35 = $38,500

Interest Amount = Balance of account at retirement - Total Deposited amount = $237,281.83 - $38,500 = $198,781.83

the correct answer is - no.

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