Question

On a whim, you purchased a scratch-off lottery ticket at the gas station. it must have been your lucky day because you won $2,500,000. being logical and rational you decide to invest the money at 3% for 14 years until you are ready to start a family. at the end of 14 years, how much will your investment be worth?

Answer 1

Answer: The winnings of $2,500,000 will grow to $3,781,474.31 if it is invested at 3% for 14 years, compounded annually.

Assuming that I'm logical and rational, I will invest the $2,500,000 at 3% for 14 years in an instrument that gives me compound interest that is compounded annually, as that will give me more money as compared to investing at simple interest.

We use the following formula to determine the Future Value of an investment:

$FV = PV * (1+r)^{n}$

where

FV = Future Value of an investment

PV = Present Value of an investment or amount invested

r = rate of interest per period

n = number of compounding periods for which the money is invested.

Since interest is compounded annually, the number of compounding periods is 14.

Substituting the values from the question in the equation above we get,

$FV = 2500000 * (1+0.03)^{14}$

$FV = 3781474.31$