Question

Part 2) If you buy $1000 worth of Microsoft stock, hold for 30 years: 1. If...

Part 2) If you buy $1000 worth of Microsoft stock, hold for 30 years:

1. If rate of return = 0.08, Future Value = ...

2. If rate of return = 0.10, Future Value = ...

Thus, a 2% increase in the rate of return leads to .... of additional interest earned over the 30 years.

Plz tell me the answers of 1. and 2.

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Answer #1

when rate of return is = 0.08

  • Present value (P) = $1000
  • Rate of return (I) = 0.08
  • Number of period (N) = 30 years
  • Future value (FV) = ?
  • Formula FV = PV(1+I)N
  • FV = 1000( 1+ 0.08) 30
  • FV = 1000( 1.08) 30
  • FV = 1000 × 10.0626568888
  • FV =$ 10062.66 (two decimal place)

When Rate of return is = 0.10

  • Present value(PV) = $1000
  • Rate of return (I) = 0.10
  • Number of period (N) = 30 years
  • Future value (FV) = ?
  • Formula FV = PV(1 + I) N
  • FV = 1000( 1+ 0.10) 30
  • FV = 1000 ( 1.10) 30
  • FV = 1000 × 17.4494022684
  • FV = 17449.40 ( Two decimal place)

2% increase in rate of return leads to (17449.40 -10062.66) =$ 7386.74 of additional interest earned over 30 years

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