Present Value of 1 Future Value of 1 Present Value of an Annuity of 1 Future Value of an Annuity of 1 An individual is planning to set-up an education fund for his grandchildren.He plans to invest $10,000 annually at the end of each year.He expects to withdraw money from the fund at the end of 10 years and expects to earn an annual return of 8%.What will be the total value of the fund at the end of 10 years?
A)$46,320
B)$67,107
C)$100,000
D)$144,870
E)$215,890

Question

Present Value of 1  Future Value of 1  Present Value of an Annuity of 1  Future Value of an Annuity of 1  An individual is planning to set-up an education fund for his grandchildren.He plans to invest $10,000 annually at the end of each year.He expects to withdraw money from the fund at the end of 10 years and expects to earn an annual return of 8%.What will be the total value of the fund at the end of 10 years?
A)$46,320 
B)$67,107 
C)$100,000 
D)$144,870 
E)$215,890

Quizplus · Accepted Answer

The given problem requires the calculation of the future value of an annuity. We can use the following formula:
FV of an annuity = Payment x [(1 + r)^n – 1]/r,
where Payment = $10,000,
r = 8% = 0.08 (annual rate of return),
n = 10 years.
FV of annuity = $10,000 x [(1+0.08)^10 - 1]/0.08 = $143,689.23

Therefore, the total value of the fund at the end of 10 years would be the future value of the annuity plus the present value of the initial investment of $10,000, calculated as follows:
Total value = FV of annuity x (1 + r) + Initial investment
Total value = $143,689.23 x (1 + 0.08) + $10,000 = $144,870.34 ≈ $144,870. Hence the correct answer is D) $144,870.