This Problem Demonstrates the Dependence of the Future Value of an Annuity

question 13

Essay

This problem demonstrates the dependence of the future value of an annuity on the interest rate. Suppose $1,000 is invested at the end of each year for 20 years. Calculate the future value if the investments earn an annually compounded rate of return of:
a) 5% b) 6% c) 7% d) 8%
Note that the future value increases proportionately more than the interest rate.

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Definitions:

Accommodate

To make suitable or compatible adjustments or modifications to something or someone to fit a particular situation or need.

Unconsciously Craves

Desires or wants that individuals are not fully aware of but influence their behavior and decisions.

Positive Feedback

A process in which the effects of a small disturbance on a system include an increase in the magnitude of the perturbation.

Innate Talent

Natural abilities or proficiency in certain activities or fields present from birth or without the need for learning.