Question
When finding the future value (FV7) of a deferred annuity of five annual payments of $1000, with the first payment at the beginning of year
When finding the future value (FV7) of a deferred annuity of five annual payments of $1000, with the first payment at the beginning of year four, which of the following is correct? The relevant rate 10% pa. a.FV7 = 1000 x FVIFA(5,.1) b.FV7 = 1000 x FVIFA(5,.1) x (1.1)-1 c.FV7 = 1000 + 1000 x (1.1) + 1000 x (1.1)2 + 1000 x (1.1)3 + 1000 x (1.1)4 d.Both (a) and (c) are correct. e.FV7 = 1000 x FVIFA(7,.1). I dont quite understand the answer, as the correct answer is (D). Isn't it 1000[ (1+0.1)^8-1/0.1] - 1000[1+0.1)^3/0.1 The explanation ive given above is by using 8 annuities (due to deferred) and deduct those years that is being deferred, would appreciate if you can provide information based on this. Thanks.
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