Answer:
e) Nan will have more money than Neal at any age.
Explanation:
In compound interest, the interest earned in the year is added to the principal amount at the beginning of the next year. Earned interest becomes part of the principal which makes it earn interest. Adding interest to the principal to earn more interest is known as compounding.
The longer the investment period is, the more time interest will be compounded, and the more the investment will grow. Nan made her investment at age 25. By the time she retires, her investment period will be 35 years. Neil started her investment at age 30. At any given time after they are both age 30, Nan's investment will have earned compounded interest five more times than Neil. Therefore, Nan will have more money at any given time.
Answer:
The time line from minting to the first sale is:
0-192
$15 - $430,000
we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is:
FV = PV(1 + r)t
Solving for r :
r = (FV/PV)1/t - 1
r = ($430,000/$15)1/192 - 1
r = .0549, or 5.49%
The time line from the first sale to the second sale is:
0-35
$430,000 - $4,582,500
we can use either the FV or the PV formula. Using the FV formula, that is:
FV = PV(1 + r)t
Solving for r:
r = (FV/PV)1/t - 1
r = ($4,582,500/$430,000)1/35 - 1
r = .0699, or 6.99%
The time line from minting to the second sale is:
0-227
$15 - $4,582,500
we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is:
FV = PV(1 + r)t
Solving for r, we get:
r = (FV/PV)1/t - 1
r = ($4,582,500/$15)1/227 - 1
r = .0572, or 5.72%
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