John decides to take his annual Christmas bonus of $2,000 and invest it each year for the next five years in stock he believes can earn an 8% annual return. How much will John's investment be worth at the end of the five years?

Question

Quizplus · Accepted Answer

John is making a series of equal investments at the end of each year, which is an example of an ordinary annuity. The future value of an ordinary annuity can be calculated using the formula: FV = P * [(1 + r)^n - 1] / r, where P is the payment (annual investment), r is the annual interest rate, and n is the number of periods. Plugging in the values: P = $2,000, r = 0.08 (8%), and n = 5, we get FV = $2,000 * [(1 + 0.08)^5 - 1] / 0.08 = $11,734.

John Decides to Take His Annual Christmas Bonus of $2,000