The future value of $1,000 invested today for three years that earns 10% compounded annually is greater than the future value of a $500 annuity with the same interest rate over the same period.

Question

Quizplus · Accepted Answer

The future value of $1,000 invested today at 10% compounded annually for three years is:
FV = $1,000 x (1 + 0.1)^3 = $1,331

The future value of a $500 annuity with the same interest rate over the same period is:
FV = $500 x [(1 + 0.1)^3 - 1]/0.1 = $1,355

Therefore, the statement is false. The future value of the annuity is greater than the future value of $1,000 invested today.

The Future Value of $1,000 Invested Today for Three Years