You are going to invest $500 at the end of each year for 10 years. Given an interest rate, you can
ﬁnd the future value of this investment by adding the cash ﬂows together and ﬁnding the future
value of the sum using the appropriate future value factor.

Question

Quizplus · Accepted Answer

The future value of an investment with periodic cash flows should be calculated using the future value of an annuity formula, which accounts for each cash flow being invested for a different length of time. Simply adding the cash flows together and applying a future value factor does not accurately account for the compounding effect over time.

You Are Going to Invest $500 at the End of Each