Question

Maria is 30 years old and has a nest egg of $25,000 that she worked hard to save

through her twenties. She would like to invest the money in order to have a down
payment for a home by the time she is 35.
How would you recommend Maria invest her money?

Answer 1

To recommend an investment strategy for Maria, we can consider compound interest. If she invests her $25,000 with an average annual return of 7%, her investment could potentially grow to around $35,450 by the time she is 35 years old.

Step-by-step explanation:

To recommend an investment strategy for Maria, we can consider the power of compound interest. According to the information provided, Maria is currently 30 years old and wants to have a down payment for a home by the time she is 35. Since she already has a nest egg of $25,000, we can calculate the potential growth of her money using compound interest.

Assuming a 7% real annual rate of return (above the rate of inflation), we can use the formula for compound interest to calculate the future value of Maria's investment:

Future Value = Initial Investment x (1 + Interest Rate)^Number of Years

Plugging in the values:

Initial Investment = $25,000
Interest Rate = 7%
Number of Years = 5

Solving for the Future Value:

Future Value = $25,000 x (1 + 0.07)^5 = $35,449.60

Therefore, if Maria invests her $25,000 and achieves an average annual return of 7%, her investment could potentially grow to around $35,450 by the time she is 35 years old.