Question

Compound Interest (LO1) Suppose that the value of an investment in the stock market has increased at an average compound rate of about 5% since 1914. It is now 2016.

If someone invested $1,000 in 1914, how much would that investment be worth today?

Answer 1

The investment is worth $144,980 today

Step-by-step explanation:

The formula for calculating the future value of an invested amount compounded annually at a certain percentage rate (r) over a period of time (t) is given by:

`FV = PV (1+(r)/(n))^(nt)\\ where:\\FV = future\ value\\PV = present\ value = \$1000\\r = interest\ rate = 5\%=0.05\\n = number\ of\ compounding\ period\ per\ year\ = 1\\t = time = 1914\ to\ 2016 = 102\\\therefore FV = PV (1+(r)/(n))^(nt)\\= FV = 1000 (1+(0.05)/(1))^((1 *102))\\= 1000(1.05)^(102)\\FV= 1000 * 144.98\\FV= \$144,980`