If you invest $1,000 at the end of each of the next 5 years and the investment e

Question

If you invest $1,000 at the end of each of the next 5 years and the investment earns 4% interest, what is the value of the investment at the end of 5 years?

Future Value of an Annuity of $1

4%

5%

6%

7%

8%

9%

4

4.246

4.310

4.375

4.440

4.506

4.573

5

5.416

5.526

5.637

5.751

5.867

5.985

6

6.633

6.802

6.975

7.153

7.336

7.523

$5,416

$4,310

$5,000

$5,200

Future Value of an Annuity of $1

4%

5%

6%

7%

8%

9%

4

4.246

4.310

4.375

4.440

4.506

4.573

5

5.416

5.526

5.637

5.751

5.867

5.985

6

6.633

6.802

6.975

7.153

7.336

7.523

Explanation / Answer

Solution :

Annual amount of annuity = $1,000

Period = 5 years

Rate of interest = 4%

Value of investment at the end of 5 years = Annual annuity amount * Cumulative FV factor at 4% for 5 periods

= $1,000 * 5.416 = $5,416

Hence option A is correct.

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