Suppose you have $10,000 to invest in a risky small-company stock for three years. The average annual rate of return is 9.1%. What is the real future value of your investment after three years?

Question

Quizplus · Accepted Answer

To calculate the real future value of the investment, we need to take into account inflation. Let's assume an inflation rate of 2% per year. Using the formula for future value with annual compounding, we get:

FV = PV x (1 + r)^n
where PV = $10,000, r = 9.1% - 2% = 7.1%, and n = 3

FV = $10,000 x (1 + 0.071)^3
FV = $12,986.76

Therefore, the real future value of the investment after three years is $12,986.76. The best choice is D.

Suppose You Have $10,000 to Invest in a Risky Small-Company