Assume You Are to Receive a 10-Year Annuity with Annual

question 6

Multiple Choice

Assume you are to receive a 10-year annuity with annual payments of $100.The first payment will be received at the end of Year 1,and the last payment will be received at the end of Year 10.You will invest each payment in an account that pays 9 percent compounded annually.Although the annuity payments stop at the end of year 10,you will not withdraw any money from the account until 20 years from today,and the account will continue to earn 9% for the entire 20-year period.What will be the value in your account at the end of Year 20 (rounded to the nearest dollar) ?

• A) $38,359
• B) $35,967
• C) $28,000
• D) $19,000

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Definitions:

Investment Demanded

Investment demanded refers to the total amount of spending by businesses and individuals on capital goods like machinery, buildings, and technology, to increase future productivity.

Interest Rate

The percentage of a sum of money charged for its use, often expressed as an annual percentage.

Uncertainty

The lack of complete certainty in situations, often due to incomplete information, that affects decision-making processes in economics and finance.

Market Interest Rates

The rates at which borrowers and lenders conduct transactions in the open market, influenced by the supply and demand for credit, inflation, and central bank policies.