ChOS-HW Seved Help Save& Exit Submit Check my work Problem 5-3 Compound Interest
ID: 2818925 • Letter: C
Question
ChOS-HW Seved Help Save& Exit Submit Check my work Problem 5-3 Compound Interest (LO Suppose that the value of an Investment in the stock market has is now 2016. creased at an average compound rate of about 5% since 1905 It a. If someone invested $1,000 in 1905, how much would that investment be worth today? (Do not round intermediate calculations Round your answer to 2 declmal places.) Investment b. If an investment from 1905 has grown to $1 million, how much was inve Round your answer to 2 decimal places.) 905? (Do not round intermedlate calculations Present valueExplanation / Answer
a) The future value of investment is calculated as follows
Future value = Present value ( 1+interest rate)n
FV = $ 1000 ( 1+ 0.05) 111
FV = $ 224,911.78
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b)
Future value = Present value ( 1+interest rate)n
$ 1,000,000 = PV * (1+0.05)111
Present value = $ 4,446.19 was invested in the year 1905