If you invest $1,000 at the end of every year for five years at an interest rate of 10%,the balance of your investment in 5 years will be closest to:

Question

Quizplus · Accepted Answer

Using the formula for future value of an annuity:
FV = PMT x ((1+r)^n - 1) / r 
where PMT is the annual payment, r is the interest rate, and n is the number of years

In this case: 
PMT = $1,000
r = 10%
n = 5

FV = $1,000 x ((1+0.10)^5 - 1) / 0.10
FV = $1,000 x (1.6105 - 1) / 0.10
FV = $1,000 x 6.105
FV = $6,105

Therefore, the balance of your investment in 5 years will be closest to $6,105, which is answer choice D.

If You Invest $1,000 at the End of Every Year