Question

Suppose you start an annuity where you invest $2,000 at the beginning of each year and 4% interest is paid at the end of the year. What is the value of the annuity at the end of 5 years, rounded to the nearest dollar? It is $

Answer 1

I believe $80 dollars would be 4% of 2,000

Answer 2

The value of the annuity at the end of 5 years, rounded to the nearest dollar is $10,833.

What is the value of the annuity at the end of 5 years?

The formula that can be used to determine the future value of the annual annuity is:

Yearly deposity x annuity factor

Annuity factor = {[(1+r)^n] - 1} / r

Where:

• r = interest rate
• n = number of years

2000 x {[(1.04^5) - 1] / 0.04} = $10,832.65

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