Question

Severson has an annuity due that pays $400 per year for 20 years. What is the value of the cash flows 20 years from today if they are placed in an account that earns 7.50%? Note: You are asked to find the FV one year after the last cash flow is realized.

Answer options:

9,675.00

$9,000.00

$16,846.35

$18,621.01

Answer 1

Ans :

Option D

Future value of cash flow = $ 400 * present value annuity factor ( 7.5% , 20 years)   

= $ 400 * 46.55253 ( annuity factor is given below)

= $ 18,621.01

Note 1:

1.075	1.075
(1.075)^2	1.155625
(1.075)^3	1.242297
(1.075)^4	1.335469
(1.075)^5	1.435629
(1.075)^6	1.543302
(1.075)^7	1.659049
(1.075)^8	1.783478
(1.075)^9	1.917239
(1.075)^10	2.061032
(1.075)^11	2.215609
(1.075)^12	2.38178
(1.075)^13	2.560413
(1.075)^14	2.752444
(1.075)^15	2.958877
(1.075)^16	3.180793
(1.075)^17	3.419353
(1.075)^18	3.675804
(1.075)^19	3.951489
(1.075)^20	4.247851

Total = 46.55253