Certified Financial Planner (CFP) Practice Exam 2025 – All-in-One Study Guide for Exam Success!

Question: 1 / 505

What is the future value of Gwyneth's potential salary increase of $10,000 annually over 18 years when accounting for a 2.9126% adjusted return rate?

$20,000

$180,000

To calculate the future value of a series of annual salary increases, we use the future value of an annuity formula, which takes into account a fixed payment (in this case, the $10,000 annual salary increase) over a specified number of years (18 years) and includes the effect of an interest rate (in this case, 2.9126%).

The formula for the future value of an annuity is:

\[ FV = P \times \frac{(1 + r)^n - 1}{r} \]

where:

- \( FV \) is the future value of the annuity,

- \( P \) is the annual payment (salary increase),

- \( r \) is the interest rate (adjusted return rate),

- \( n \) is the number of years.

Here, Gwyneth's annual increase is $10,000, \( r \) is 0.029126 (which is 2.9126% expressed as a decimal), and \( n \) is 18.

Plugging in the values:

\[ FV = 10,000 \times \frac{(1 + 0.029126)^{18} - 1}{0.029126} \

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$150,000

$200,000

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