Question 2: If you plan to invest $7000 annually for 5 years and the discount rate...
Question 2:
If you plan to invest $7000 annually for 5 years and the discount
rate is 10%.
Required: i) Calculate what is the future value?
ii) Briefly explain the time value of money.
Homework Answers
i) Future value of annuity=Annuity * [{(1+rate)^time period}-1]/rate
= $ 7000 * [{(1+10% )^ 5 }-1]/ 10%
= $ 42,735.70
Hence, the correct answer is $ 42,735.70
ii) The time value of money explains the actual value of the cash flows today which are to be received in the future. This concept enables to understand the amount of interest the cash flows can earn through interest over a period of time.
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