Question

Chadwick wants to know the future value of two different investing strategies.

• In plan 1, Chadwick would invest $500 today and at the end of each of the next 36 months, in an account paying a 5.4% annual interest rate compounded monthly.
• In plan 2, Chadwick would make the same series of payments in the same account, but would start after 2 years.
Which of these pairs of results is correct? Round your calculations to the nearest dollar. Select one:
a. Plan 1 Plan 2
$19,493 $21,711
b. Plan 1 Plan 2
$19,493 $19,493
c. Plan 1 Plan 2
$18,989 $21,655
d. Plan 1 Plan 2
$19,580 $19,580

Answer 1

Plan 1 has a future value of $19,493 and Plan 2 has a future value of $21,711. The correct answer is option a.

Step-by-step explanation:

In plan 1, Chadwick invests $500 at the end of each of the next 36 months in an account paying a 5.4% annual interest rate compounded monthly.

In plan 2, Chadwick makes the same series of payments in the same account, but starts after 2 years. To find the future value of each plan, we can use the compound interest formula:

$P(1+r/n)^(nt),

where P is the principal, r is the annual interest rate, n is the number of compounding periods per year, and t is the number of years.

For plan 1, the future value is $19,493.

For plan 2, we need to find the future value of $500 invested for 34 months (since Chadwick starts after 2 years), which is $21,711.

So the correct pair of results is Plan 1: $19,493 and Plan 2: $21,711.