Investment

missyd819 · #1 $Old$ July 16th, 2009, 04:35 PM

An investment advisor is planning the retirement of a customer. The customer has $10,000 dollars to invest and needs the investment to increase to $30,000 within 20 years...so 20 years or less.

Now I need to figure out 2 investment plans to make the above numbers work themselves out. I am so incredibly frustrated. I thought of the compound interest formula, but the problem does not tell me how many times a year the investment can or should be compounded.

Can someone please shed some light? I really need help!

Thanks is advance!

pickslides · #2 $Old$ July 16th, 2009, 05:22 PM

$A=P\left(1+\frac{r}{100}\right)^t$

$30,000=10,000\left(1+\frac{r}{100}\right)^{20}$

solve for r to find the required interest rate.

pickslides · #3 $Old$ July 16th, 2009, 05:30 PM

Also

$I+P = \frac{PRT}{100}+P$

$20,000+10,000 = \frac{10,000\times R\times 20}{100}+10,000$

once again solve for R to find required rate using simple interest.

missyd819 · #4 $Old$ July 17th, 2009, 10:19 AM

I have been told to use the formula A = Pe^rt.

So, I get $30,000 = $10,000 e^20r

I am unsure where to go from here????

missyd819 · #5 $Old$ July 17th, 2009, 10:32 AM

OK, I think I got it. I got a percentage of 5.5%.

Can anyone tell me if this is correct?

skeeter · #6 $Old$ July 17th, 2009, 12:07 PM

Quote:

Originally Posted by missyd819 $View Post$

I have been told to use the formula A = Pe^rt.

So, I get $30,000 = $10,000 e^20r

I am unsure where to go from here????

$30000 = 10000e^{20r}$

divide both sides by 10000 ...

$3 = e^{20r}$

take the natural log of both sides ...

$\ln(3) = 20r$

$r = \frac{\ln{3}}{20} \approx 0.055$ or 5.5%

now the big question ... do you know what the formula $A = Pe^{rt}$ means?

missyd819 · #7 $Old$ July 17th, 2009, 12:11 PM

YESSSS! I got the 5.5% too. I figured it out. Sooo proud of myself!!

I believe it means the money is continuously compounded.

skeeter · #8 $Old$ July 17th, 2009, 01:28 PM

Quote:

Originally Posted by missyd819 $View Post$

YESSSS! I got the 5.5% too. I figured it out. Sooo proud of myself!!

I believe it means the money is continuously compounded.

correct

safaritom · #9 $Old$ August 24th, 2009, 05:50 PM

Hi, I have noticed that this problem was already posted one time here, however even after reading I am still not clear on the investment plan part.
The problem states: create three investment plans for customer who has $10,000 dollars to invest and needs the investment to increase to $30,000 dollars within 20 years.
I have created a plan using Exponential Growth formula for a long term CD investment, and a Compound Interest Formula for a savings account. Now I am not sure what to use for the third plan

. Anyone? I was thinking about investing in stocks with dividents for 20 years, however not sure what formulas to apply and how. Please Help!!

thank you

Wilmer · #10 $Old$ August 25th, 2009, 09:25 AM

The poor guy wants to invest $10,000 and get back $30,000
20 years later; he doesn't care HOW it's done: so why all the
run around about 3 plans?
10000(1 + i)^20 = 30000
ONLY one annually compounded rate is possible.

missyd819 · #11 $Old$ August 26th, 2009, 11:05 AM

How did you use the Exponential Growth formula?

I used continuous and I also found a plan on the Fidelity website that met the criteria for this plan. I need to use something else besides continuous growth, but I am unsure how to solve this using exponential growth.

Thanks.