Question

The U.S. stock market has returned an average of about 9% per year since 1900. This return works out to a real return (i.e., adjusted for inflation) of approximately 6% per year. If you invest $100,000 and you earn 6% a year on it, how much real purchasing power will you have in 30 years?

Answer 1

Answer:

Final value= $242,726.24

Explanation:

Giving the following information:

The U.S. stock market has returned an average of about 9% per year since 1900.

This return works out to a real return (i.e., adjusted for inflation) of approximately 6% per year.

If you invest $100,000 and you earn 6% a year on it for 30 years.

We know inflation is 3% (average), so our real interest rate is approximately 3%.

We need the final value formula:

FV= PV*(1+i)^n

FV= 100000*(1.03)^30= $242,726.24