Suppose your rich relative hands you a $3,000 check at the end of the school year. They tell you it's for your education. But what should you really do with that extra money? Let's see how much it would be worth if you saved it for a while. a. If you put it in a bank account earning a 2% real annual return on average, how many years would it take before it was worth $6,000? Until it was worth $12,000? Years before reaching $6,000: Years before reaching $12,000: b. If you put it in a Standard and Poor's 500 (S&P 500) mutual fund earning an average 7% real return every year, how many years does it take before it is worth $6,000? Until it is worth $12,000? Years before reaching $6,000: Years before reaching $12,000: c. Suppose you invest a little less than half your money in the bank and a little more than half in a mutual fund, just to play it somewhat safe. Under this option, you expect a 5% real return on average. How many years now until you reach $6,000 and $12,000? Years before reaching $6,000: Years before reaching $12,000:
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Step 1: Understand the problem The problem asks us to calculate how many years it would take for an initial investment of $3,000 to double to $6,000 and then double again to $12,000 under three different scenarios: a 2% bank account return, a 7% S&P 500 mutual fund Show more…
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