Question

18. From 1965 to 2018, the S&P 500 stock portfolio has generated an annual average stock return of 9.7% per year. Meanwhile, during those years, Vir Cotto has been investing $1,000 per year into the S&P 500 stock portfolio. How much would be Vir’s investment value by the end of 2018?

1. below $10,000,000.
2. between $10,000,000 and $30,000,000.
3. between $30,000,000 and $50,000,000.
4. between $50,000,000 and $70,000,000.
5. more than $70,000,000.

Answer 1

a) below $10,000,000

If we take $1,000 to be added every year from 1965 to 2018, we have $54,000 which is (2018-1965+1)*$1,000 invested.

Now the fund is giving annual returns of 9.7% per year.

So if we take in the second year he wll have $1,000 from year 2 + $1,000 from year 1 + $97(9.7%) interest of year 1

We need to do this task from 1965 to 2018

And our compounding results come to be roughly $ 1518615.631 which is $1.5 million

Attaching the complete excel calculation such that you can have a look

Column 3 has 1.097 times the previous year balance + $1,000 of that year --> Net Value in nth Year