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Suppose that the value of an investment in the stock market has increased at an average compound rate of about 5% since 1900. It is now 2019. (LO5-1) a. If your great-grandfather invested $1,000 in 1900, how much would that investment be worth today? b. If an investment in 1900 has grown to $1 million, how much was invested in 1900?

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Answer:

Results are below.

Explanation:

Giving the following information:

Interest rate= 5%

Number of years= 2019 - 1900= 119

a. Initial investment= $1,000

To calculate the future value, we need to use the following formula:

FV= PV*(1+i)^n

FV= 1,000*(1.05^119)

FV= $332,297.13

b. Future value= $1,000,000

Present value formula:

PV= FV/(1+i)^n

PV= 1,000,000/ 1.05^119

PV= $3,009.36

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