After looking at the results from questions 1, and 2. Seth realizes that a 2% return in a certificate of deposit will never allow him to reach his goal of $1 million in 10 years. Presuming his apartment will indeed be worth $400,000 in 10 years, compute the future value of Seth’s $100,000 investing using a 10%, 15%, and 20% return compounded semiannually for 10 years. Will any of these rates of return allow him to accomplish his goal of reach $1 million by age 55?

Question

After looking at the results from questions 1, and 2.  Seth realizes that a 2% return in a certificate of deposit will never allow him to reach his goal of $1 million in 10 years.  Presuming his apartment will indeed be worth $400,000 in 10 years, compute the future value of Seth’s $100,000 investing using a 10%, 15%, and 20% return compounded semiannually for 10 years.  Will any of these rates of return allow him to accomplish his goal of reach $1 million by age 55?

Henry · Answer

P = Po(1+r)^n.

r = (10%/2)/100% = 0.05 = Semiannual % rate expressed as a decimal.

n = 2Comp./yr. * 10yrs = 20 Compounding periods.

P = 100,000(1.05)^20 = $265,329.77.

Repeat the above procedure for 15% and 20%.