Question

Suppose Juan invests in an annuity that pays 6% annual interest. He contributes $4,000 annually for 5 years. What is the value of the annuity after 5 years?

a) $21,200
b) $22,800
c) $23,600
d) $24,400

Answer 1

The value of the annuity after 5 years is approximately d) $24,400.

Step-by-step explanation:

To calculate the value of the annuity after 5 years, we can use the formula for the future value of an annuity:

FV = P * ((1+r)^n - 1) / r

where FV is the future value, P is the annual payment, r is the interest rate per period, and n is the number of periods. In this case, P = $4,000, r = 6%, and n = 5. Plugging these values into the formula:

FV = 4000 * ((1+0.06)^5 - 1) / 0.06

FV ≈ $24,400

Therefore, the value of the annuity after 5 years is approximately d) $24,400.