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AACE International CCP Exam - Topic 5 Question 41 Discussion
Topic #: 5
Money is value. Having money when you need it is very important. Money can also be valuable when used wisely by knowing when to spend and when to conserve. Also, planning now for future expenses can be a plus to the company rather than a debit.
There are several ways to capitalize money and spending. Basically there is the single payment method that has a compound amount factor and a present worth factor. There is the uniform annual series that has a sinking fund factor, capital recovery factor and also the compound amount factor and present worth factor. At this point, we can assume money is worth 10%.
The following question requires your selection of CCC/CCE Scenario 7 (4.8.50.1.1) from the right side of your split screen, using the drop down menu, to reference during your response/choice of responses.
If $10,000 is invested now at 10% compounded annually, what will the investments be worth 10 years from now?
To determine the future value of $10,000 invested at 10% compounded annually for 10 years, you can use the future value formula:
FV=PV(1+i)nFV = PV times (1 + i)^nFV=PV(1+i)n
Where:
FVFVFV is the future value
PVPVPV is the present value ($10,000)
iii is the interest rate (10% or 0.10)
nnn is the number of periods (10 years)
FV=10,000(1.10)1010,0002.593725,937FV = 10,000 times (1.10)^{10} approx 10,000 times 2.5937 approx 25,937FV=10,000(1.10)1010,0002.593725,937
Rounded to the nearest value, the correct answer is A. $25,940.
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