Question

Question 10 (0.15 points) Your mother just inherited $500,000. If she invests the money in a well-diversified, low-cost mutual fund returning 7% per year, how many years will it take her investment to become worth $1,000,000?

Answer 1

Here we will use the following formula:

FV = PV * (1 + r%)ⁿ

where, FV = Future value = $1000000, PV = Present value = $500000, r = rate of interest = 7%, n= time period

now, putting theses values in the above equation, we get,

$1000000 = $500000 * (1 + 7%)ⁿ

$1000000 / $500000 = (1 + 0.07)ⁿ

2 = (1.07)ⁿ

(1.07) = (1.07)ⁿ

(1.07)^10.25 = (1.07)ⁿ

n = 10.25

So, it will take approx 10.25 years