Question

You have $10,700 in your account today. You expect to earn a real annual return (APR) of 3.9% with quarterly compounding for the next twenty years. If inflation is 1.9% (APR, meaning it's accounted for quarterly), then your real rate of return, considering inflation, would be 3.9% - 1.9% = 2.0% per year. This means that, after accounting for inflation, your money is expected to grow at a rate of 2.0% annually.

Answer 1

To have $10,000 in ten years with an interest rate of 10% compounded annually, you would need to put approximately $3,689.50 into the bank account at the beginning.

Step-by-step explanation:

To calculate how much money you need to put into a bank account that pays 10% interest compounded annually to have $10,000 in ten years, you can use the formula for compound interest.

1. Start with the formula: A = P(1+r/n)nt, where A is the ending amount, P is the principal amount, r is the interest rate, n is the number of times interest is compounded per year, and t is the number of years.
2. Substitute the given values into the formula: 10,000 = P(1+0.1/1)1*10, where P is the unknown principal amount.
3. Solve for P: P = 10,000 / (1.1)10.

Using a calculator, P is approximately $3,689.50.