Caroline's roof is aging. To plan for the eventual roof replacement, she puts $1,000 at the end of each year, starting with this year, into a certificate of deposit (CD) paying 4%. Caroline plans to do this for seven years. The amount Caroline should have at the end of seven years for roof replacement is closest to:
A) $1,315.93
B) $6,002.05
C) $7,898.29

Question

Quizplus · Accepted Answer

Caroline is making an annual investment of $1,000 into a CD that pays 4% interest, compounded annually, for seven years. This is a case of calculating the future value of an annuity, where regular, equal payments are made into an investment that grows at a certain rate. The formula for the future value of an annuity is FV = P * [((1 + r)^n - 1) / r], where P is the payment amount, r is the annual interest rate, and n is the number of periods. Plugging in Caroline's numbers: FV = $1,000 * [((1 + 0.04)^7 - 1) / 0.04], which calculates to approximately $7,898.29.

Caroline's Roof Is Aging