Question

Over a 17-year period an investment of $1,475 in common stocks returned an average of 10% in nominal terms and 3% in real terms. At the end of the 17 years, the portfolio value was:

Answer 1

The nominal value at the end of 17 years = $7,455.34

The real value at the end of 17 years = $2,437.95

Step-by-step explanation:

Value at the end of 17 years = present value x (1+ interest rate)^t

The nominal value at the end of 17 years = $1,475 x (1.1)^17 = $7,455.34

The real value at the end of 17 years = $1,475 x (1.03)^17 = $2,437.95