Question

if the current rate of interest is 8% APR, then the future value of an investment that pays $50) every two years and lasts 20 years is closet to:

a) 11,000
b) 10,661
c) 22,881
d) 20,000

Answer 1

Correct Option is (b)10661

Reason :

The future value can be calculated using FV function

=FV(rate,nper,pmt)

where

rate is the rate of interest per period i.e 8% * 2 = 16% (As given that it pays every two years so rate of interest is multiplied by 2)

nper is the number of payments i.e 20 / 2 = 10 (As given that it pays every two years so number of payments  is divided by 2)

pmt is the periodic payment i.e 500

=FV(16%,10,-500)

therefore future value is 10,661.