Question

Pamela is also a saver. She sets aside $100 per month during her 40-year career. She invests in the U.S. stock market through an index fund that averages a 7% annual return over this 40-year period. (note: this project uses 7% as the annual return of the stock market (based on historical averages) for simplicity). However, keep in mind that, unlike a savings account, the stock market does not guarantee any specific return rate. Stocks rise and fall throughout the day so total earnings depend on the price at which you buy and sell the shares.

Answer 1

The question involves a saver using compound interest to invest in an index fund anticipating a 7% average annual return over 40 years, addressing the nature of stock market investments and the advantages of starting to save early.

Step-by-step explanation:

The question is about a saver named Pamela who is investing $100 per month for a 40-year career into a U.S. stock market index fund with an averaged 7% annual return. The discussion revolves around the power of compound interest and the importance of saving early to maximize potential returns over time. By investing consistently and allowing the investment to grow at a steady rate, savers can also consider the typical higher return rates of stocks over bonds and savings accounts in the long term, despite the market's volatility in the short term.