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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 $)?Sir this question was based on another person’s question that was posted awhile ago
Why can’t you use this method when figuring out the answer
=Annual cashflow*Annuity factor
=1000*3.
=$3993And then to convert it into present values
=Future Value *1/(1+r)^n
=3993* 1/(1+8/100)^5
=$2717The annuity factor is not 3.
Also, the question does not ask for the present value. It asks for the terminal value – the value at the end of 5 years.
Do watch my free lectures on this.
Wait I’m sorry, there was mistake in typing the number
I meant to say that the discount rate under the annuity factor for 8% was 3.993 for 5 years
Why is that figure wrong?
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