Question

Suppose that the value of an investment in the stock market has increased at an average compound rate of about 5% since 1909. It is now 2016.

Required:
a. If someone invested $1,000 in 1909, how much would that investment be worth today?
b. If an investment from 1903 has grown to $1 million, how much was invested in 1903?
c.

Answer 1

a. If someone invested $1,000 in 1909, the investment's worth today is $185,035.48

b. If an investment from 1903 has grown to $1 million, the amount invested in 1903 is $4,032.82

Step-by-step explanation:

a) FV (Future Value) $185,035.48

PV (Present Value) $1,000.00

N (Number of Periods) 107.000

I/Y (Interest Rate) 5.000%

PMT (Periodic Payment) $0.00

Starting Investment $1,000.00

Total Principal $1,000.00

Total Interest $184,035.48

b) You will need to invest $4,032.82 at the beginning to reach the future value of $1,000,000.00.

FV (Future Value) $999,999.00

PV (Present Value) $4,032.82

N (Number of Periods) 113.000

I/Y (Interest Rate) 5.000%

PMT (Periodic Payment) $0.00

Starting Investment $4,032.82

Total Principal $4,032.82

Total Interest $995,966.1