Question

You just invested $49,000 that you received as an insurance settlement. How much more will this account be worth in 40 years if you earn an average return of 7.6 percent rather than just 7.1 percent?

Multiple Choice

$59,818.92

$98,509.16

$140,423.33

$155,986.70

$138,342.91

Answer 1

Correct answer is:

$155,986.70

Explanation:

Investment = $49,000

Average return = 7.6%

Time period = 40

FV = PV * (1 + Average return) ^{Number of years} = 49000 * (1 + 7.6%) ⁴⁰ = $917,670.84

When:

Average return = 7.1%

FV = 49000 * (1 + 7.1%) ⁴⁰ = $761,684.14

As such when average return is 7.6%, amount will be more by = 917670.84 - 761684.14 =$155,986.70

As such when average return is 7.6%, amount will be more by = $155,986.70

As such option D is correct and other options A, B, C and E are incorrect.