Question

The 1990s was a period of rapid economic growth and a robust stock market that yielded an average annual return of 18.6%!

A. If you invested $1,000 at the beginning of the decade, and you reinvested the returns you earned every year, calculate the value of your investment at the end of the decade.

B. Did this high rate of return continue into the 2000s and beyond? Look online at stock charts for the S&P 500 to figure out what happened. Use what you learned in the chapter to explain why.

Answer 1

A.

Using the formula for calculating amount:-

A = P ( 1 + ( R / 100 ))^N ( Where A = Total investment amount at the end of the decade, P = Principal amount invested, R = Annual interest rate in percentage, and N = Time in ( years ).

A = 1000 ( 1 + 18.6 / 100 ))^10

A = $5,506.13.

Therefore, the value of my investment at the end of the decade would be $5,506.13.

B. No, the stock market started falling in December, 1998, due to currency crisis in East Asian countries and the fall in the stock market continued till December 2001. After that the stock market picked up again and rose till December, 2006, however, because of the great financial crisis, the stock market nosedived by at least 45 percent.