Investments in the stock market have increased at an average compound rate of ab

Question

Investments in the stock market have increased at an average compound rate of about 5% since 1904. It is now 2013.

If you invested $1,000 in the stock market in 1904, how much would that investment be worth today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

If your investment in 1904 has grown to $1 million, how much did you invest in 1904? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Investments in the stock market have increased at an average compound rate of about 5% since 1904. It is now 2013.

Explanation / Answer

Assuming it is 2013 now, so 109 years have passed now since 1904

compound rate = 5%

a) investment worth today = investment*(1+rate)^109 = 1000*(1.05)^109 = $ 204,001.61

b) now investment has grown to $1million today

so amount invested in 1904 = final amount/(1+rate)^109 = 1000000/(1.05)^109 = $ 4901.92

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