Question

In: Finance

To save for a new car, Samuel Smith will invest $8,000 at the end of each...

To save for a new car, Samuel Smith will invest $8,000 at the end of each year for the next 5 years. The interest rate is 8%. What is the future value?

Multiple Choice

  • $40,000

  • $7,980

  • $46,936

  • $36,048

Solutions

Expert Solution

Calculation of Future value.

Future Value = PV * (1+i)n

Here PV is the present value of the amount invested

i is rate of interest and n is the number of periods

End of Year 1   $8,000 (1+0.08)4

=                    $8,000 * 1.360

=                    $10,884

End of Year 2   $8,000 (1+0.08)3

=                    $8,000 * 1.259

=                    $10,077

End of Year 3   $8,000 (1+0.08)2

=                    $8,000 * 1.166

=                    $9,331

End of Year 4   $8,000 (1+0.08)1

=                    $8,000 * 1.08

=                    $8,640

End of Year 5 $8,000

=                    $8,000

Total Future Value at the end of year 5 = $10,884 + $10,077 + $9,331 + $8,640 + $8,000

                                                        = $46,936 (approx).

Hence, the correct answer is $46,936

jeff jeffy answered 8 months ago
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