The U. S. stock market has returned an average of about 9% per year since 1900. This return works out to a real return (i. e., adjusted for inflation) of approximately 6% per year. If you invest $100,000 and you earn 6% a year on it, how much real purchasing power will you have in 30 years?

Question

Business

Alice Herrera

8 February, 14:04

The U. S. stock market has returned an average of about 9% per year since 1900. This return works out to a real return (i. e., adjusted for inflation) of approximately 6% per year. If you invest $100,000 and you earn 6% a year on it, how much real purchasing power will you have in 30 years?

+1

Answers (1)

Know the Answer?

Mueller · Answer 1

Final value = $242,726.24

Explanation:

Giving the following information:

The U. S. stock market has returned an average of about 9% per year since 1900.

This return works out to a real return (i. e., adjusted for inflation) of approximately 6% per year.

If you invest $100,000 and you earn 6% a year on it for 30 years.

We know inflation is 3% (average), so our real interest rate is approximately 3%.

We need the final value formula:

FV = PV * (1+i) ^n

FV = 100000 * (1.03) ^30 = $242,726.24