Question

find the future value of the following investment; the interest rate is 8% per year, compounding annually:

A. $100 is invested each year beginning one year from now and continuing through year 9, when the proceeds are withdrawn?

B. $100 is invested each year starting today and continuing through year 9, when the proceeds are withdrawn?

C. $100 is invested each year beginning a year from now and continuing through year 8. The proceeds are to be withdrawn in year 9?

Answer 1

a.

Calculating Future Value,

Future Value = [PV = 0, PMT = 100, T = 9, I = 0.08]

Future Value = $1,248.76

b.

Calculating Future Value,

Future Value = BEG[PV = 0, PMT = 100, T = 9, I = 0.08]

Future Value = $1,348.66

c.

Calculating Future Value,

Future Value = [PV = 0, PMT = 100, T = 8, I = 0.08]

Future Value = $1,063.66

Future Value at the end of Year 9 = (1,063.66)(1.08) = $1,148.75