4.2 Future Value of an Annuity Stream
Let's vary the nest egg example with a different savings plan. Say you decide to put away $1,000 at the end of every year for the next five years. If you can earn 6% on the account, what is the value of the account at the end of the five years? Notice that, unlike the previous problem, you do not put any money away today. The first deposit is at the end of the first year. To solve this problem with our current tools, we handle each payment separately and add their values at the end of five years. See Figure 4.2.
Figure 4.2
The time line of a $1,000-per-year nest egg.
Description
An illustration of a right-facing ...
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