Question

Time Value of Money (Future Value of an Annuity) If someone invests $6000 each year for 20 years and earns a 4% return, how much will they have at the end of 20 years?

Answer 1

To calculate the future value of an annuity, use the formula: Future Value = Payment ×
`[(1 + Interest Rate)^Number of Years - 1] / Interest Rate`. In this scenario, the person will have approximately $174,494 at the end of 20 years.

Step-by-step explanation:

To calculate the future value of an annuity, we can use the formula:

Future Value = Payment ×
`[(1 + Interest Rate)^Number of Years - 1] /`Interest Rate

In this scenario, the payment is $6000, the interest rate is 4%, and the number of years is 20. Plugging these values into the formula, we get:

Future Value =
`$6000 × [(1 + 0.04)^20 - 1] / 0.04`

Solving this equation, we find that the person will have approximately $174,494 at the end of 20 years.