3 Value of an Annuity Investment. Bobbie decides to invest $5,000 per year each year in...

Question

Question

Answer 1

Answer #1

Here, the deposits will be same every year, so it is an annuity. Here we will use the future value of annuity formula as per below:

FVA = P * ((1 + r)ⁿ - 1 / r)

where, FVA is future value of annuity, P is the periodical amount = $5000, r is the rate of interest = 9% and n is the time period = 12

Now, putting these values in the above formula, we get,

FVA = $5000 * ((1 + 9%)¹² - 1 / 9%)

FVA = $5000 * ((1 + 0.09)¹² - 1 / 0.09)

FVA = $5000 * ((1.09)¹²- 1 / 0.09)

FVA = $5000 * (2.81266478178 - 1) / 0.09)

FVA = $5000 * (1.81266478178 / 0.09)

FVA = $5000 * 20.1407197976

FVA = $100703.60

So, at the end of 10 years, investment will be worth $100703.60

Answer 2

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