Lel this is a stupid question, but is compound interest, annuity, and future value the same thing or?
So if we had a hypothetical scenario with 6% p.a. interest rate and 1000 principal, then after 5 years this would've been compounded up to \( 1000(1.06)^5\).
In the case of an annuity, you would be given 1000 every year, not just the first year. Its value will accumulate to \( 1000(1.06)^5 + 1000(1.05)^4 + \dots + 1000(1.05)^1 \), because you gained an extra $1000 at the start of EVERY year.
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The FV of the above cash flow in
five years will be exactly \(1000(1.06)^5\). But its FV in
three years would've only been \(1000(1.06)^3\). Its
present value is just 1000
The computation
of a FV is done through the means of compound interest. Compound interest is just the name for a
method; future value is the name for the
result of the method.