If today you were to invest $5,000.00 at a rate of 5.60%, you would have $511,914.48 at the end of 35 time periods (e.g. weeks, months, or years). In other words, a future value of $511,914.48 is equal to a present value of only $5,000.00.
What does this mean to you? Well, if you had a choice between taking an amount higher than the $5,000.00 today and taking the $511,914.48 at the end of 35 time periods, you should take the money today. By doing so, you would be able to invest the higher amount at 5.60% for 35 equal time periods, which would end up giving you more than $511,914.48. Answer is B. Hope this helps. Thanks.
First Method,
Solve the given question by using the formula,
Future value= Annuity((1+i)ⁿ-1 / i)
F= A((1+i)ⁿ-1 / i)
where
i=5.6%=0.056
A=annuity= $5,000
n= no. of years = 35
By putting the values,
F= ($5,000)( ((1+0.056)³⁵-1 )/ 0.056)
= $ 511914.48
b is the correct answer.
Second Method.
By using factor table,
Annual Payment by Marine=A= $5,000
Amount of interest she earns =i= 5.6%
We have to determine the future value of account after 35 years.
n=35
F=A(F/A, i%, n)
By putting the values,
F=($5,000)(F/A, 5.6%, 35)
From the economics factor table,
we find by interpolation that at 5.6% for 35 years value of F/A = 102.989
F=($5,000)(102.989)
= $514945
