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An investor plans to invest $5,000 over the next five years. The first amount of $1,000 will be
invested today followed by four further amounts of $1,000 each at one-year intervals. The
investments will earn 8% interest per year.
What will the investment be worth at the end of the fifth year (to the nearest $)?(The correct answer is $6,336.)
Shouldn’t the answer be –
$1,000 + $1,000 x Annuity factor for 4 periods at 8%
= $1,000 + $1,000 x 3.312 = $4,312.$4,312 is the present value, i.e. the value ‘now’.
The question asks for the amount at the end of 5 years, which is $4,312 x (1.08^5).
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