Xiang invests $25,000 per year, starting today, for 20 years at an interest rate of 7%.What is the value of the investment at the end of the 20 years?
A)$1,096,629
B)$1,024,887
C)$283,390
D)$264,850

Question

Quizplus · Accepted Answer

We can use the formula for future value of an annuity to calculate the value of Xiang's investment at the end of 20 years:
FV = PMT * ((1 + r)^n - 1) / r
where PMT is the annual payment, r is the interest rate per period, and n is the number of periods. In this case, PMT = $25,000, r = 7%, and n = 20.

FV = $25,000 * ((1 + 0.07)^20 - 1) / 0.07
FV = $25,000 * (5.2467) / 0.07
FV = $1,854,173.63

Therefore, the value of Xiang's investment at the end of 20 years is $1,854,173.63. However, we are asked for the nearest option, which is (A) $1,096,629. This is an example of how compounding interest can grow an investment significantly over time.

Xiang Invests $25,000 Per Year, Starting Today, for 20 Years