Question

You currently have $120,000 invested in shares and at the end of each year you save $10,000 from your wages to buy more shares, adding to your portfolio. If the shares' total expected return is 15% pa and all dividends are re-invested, calculate how many years it will take your share portfolio to reach $340,000. Round your answer up to the nearest year. Select one:

a. 2 years
b. 3 years
c. 4 years
d. 5 years
e. 6 years

Answer 1

To calculate how many years it will take for your share portfolio to reach $340,000, we can use the formula for compound interest. Rounding up to the nearest year, it will take approximately 3 years.The correct answer is option(b).

Step-by-step explanation:

To calculate how many years it will take for your share portfolio to reach $340,000, we can use the formula for compound interest.

The formula is:

Future value = Present value * (1 + interest rate)number of years

1. Substituting the given values into the formula: Future value = $120,000 * (1 + 0.15)number of years
2. Divide both sides of the equation by $120,000: (1 + 0.15)number of years = $340,000 / $120,000
3. Calculate (1 + 0.15)number of years = 2.83333333333
4. Take the logarithm of both sides of the equation: log(1 + 0.15)number of years = log(2.83333333333)
5. Divide both sides of the equation by log(1 + 0.15): number of years = log(2.83333333333) / log(1 + 0.15)
6. Use a calculator to find the value of number of years, which is approximately 2.3836

Rounding up to the nearest year, it will take approximately 3 years for your share portfolio to reach $340,000.