SOLUTION: A savings institution advertised "Invest $1000 a year for 10 years and we will pay you $1000 a year forever." The institution pays an 8% interest rate compounded annually. (a) Fin

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Question 1127929: A savings institution advertised "Invest $1000 a year for 10 years and we will pay you $1000 a year forever." The institution pays an 8% interest rate compounded annually.
(a) Find the value of the investment after 10 years. (Round your final answer to two decimal places.)
Answer by ikleyn(52794) About Me  (Show Source):
You can put this solution on YOUR website!
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It is a classic Ordinary Annuity saving plan. The general formula is 


    FV = P%2A%28%28%281%2Br%29%5En-1%29%2Fr%29,    (1)


where  FV is the future value of the account;  P is the annual payment (deposit); r is the annual percentage rate presented as a decimal; 
n is the number of deposits (= the number of years, in this case).


Under the given conditions, P = 1000;  r = 0.08;  n = 10.  So, according to the formula (1), the future value at the end of the 10-th year


    FV = 1000%2A%28%28%281%2B0.08%29%5E10-1%29%2F0.08%29 = $14486.56.

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On Ordinary Annuity saving plans,  see the lessons
    - Ordinary Annuity saving plans and geometric progressions
    - Solved problems on Ordinary Annuity saving plans
in this site.

The lessons contain  EVERYTHING  you need to know about this subject,  in clear and compact form.

When you learn from these lessons,  you will be able to do similar calculations in semi-automatic mode.