Question

To find the future value annuity factor using the time value of money table, read down the rows to find T = 2, then across the columns for an interest rate of 10 percent. The intersection of that row and column will show the factor ____.

a) 1.21
b) 1.81
c) 1.10
d) 2.00

Answer 1

Using a standard time value of money table, the future value annuity factor for T = 2 at a 10 percent interest rate is 1.81, demonstrating the increase in value of a dollar invested over two years at this interest rate.

Step-by-step explanation:

To find the future value annuity factor using the time value of money table, you would indeed read down the rows to find T = 2, then across the columns to an interest rate of 10 percent. The intersection of that row and column in a standard time value of money table reflects the cumulative factor that can be used to calculate the future value of an annuity over 2 periods at a 10% interest rate. For the scenario described, the correct factor would be b) 1.81. This factor indicates that for every dollar invested at the beginning, over the course of 2 years at a 10% interest rate it would accumulate to $1.81. This example displays the concept of how money has a different value over time depending on the rate it can earn.