Robert invests $650 in a savings account at the beginning of each of the next seven years. If his opportunity cost rate is 5 percent compounded annually, how much will his investment be worth after the last annuity payment is made? Use a financial calculator to determine the amount.
A) $5,048
B) $5,325
C) $5,557
D) $6,058
E) $6,656

Question

Quizplus · Accepted Answer

The future value of an annuity is calculated using the following formula:FV = PMT * (((1 + r)^n - 1) / r)where:PMT is the amount of each paymentr is the annual interest raten is the number of paymentsIn this case, PMT = $650, r = 5%, and n = 7. Plugging these values into the formula, we get:FV = $650 * (((1 + 0.05)^7 - 1) / 0.05)= $650 * (1.407 - 1) / 0.05= $650 * 0.407 / 0.05= $5,557Therefore, the correct answer is C) $5,557.

Robert Invests $650 in a Savings Account at the Beginning