Final answer:
The future value of an investment paying $1200 annually at a 7% interest rate over 18 years is approximately $38,992.76, calculated using the future value of an annuity formula.
Step-by-step explanation:
If the current rate of interest is 7%, then the future value (FV) of an investment that pays $1200 per year for 18 years can be calculated using the formula for the future value of an annuity. The formula for the future value of an annuity is FV = Pmt × {[(1 + r)^n - 1] / r}, where Pmt is the payment per period, r is the interest rate per period, and n is the number of periods.
Using the given values: Pmt = $1200, r = 0.07 (since 7% as a decimal is 0.07), and n = 18, we can calculate the future value of this investment.
The calculation would be FV = $1200 × {[(1 + 0.07)^18 - 1] / 0.07}. After performing the calculations, you'll find the future value to be closest to approximately $38,992.76.
Note that the exact value can slightly vary depending on the method of compounding (annual, semi-annual, etc.) but since the compounding period is not specified, we assume it is annually.