Assume that $100 is deposited at the end of each year for five years at 10% compound interest and that no withdrawals are made over the five-year period. Based on this data, which one of the following statements is correct?
A) The future value will be $550.
B) The present value can be determined by computing the present value of $500 in five years at 10%.
C) The present value can be determined by computing the present value of a $100 ordinary annuity for five years at 10%.
D) The present value will be $500.

Question

Quizplus · Accepted Answer

The present value of an ordinary annuity formula should be used to determine the present value of the series of $100 payments made at the end of each year for five years at a 10% interest rate. This accounts for the time value of money, where each payment is discounted back to its present value at the point of calculation.

Assume That $100 Is Deposited at the End of Each