- how is average return rate of stocks found?

- how is the internet rate found?

Compound Interest Formula The amount A after t years due to a principal P invested at an annual interest rate r compounded n times per year is A=P(1+nr)nt Aceording to the New York Times article, "a typical portfolio of stocks might earn 7 pereent on average, compared with the 1.55 pereent yield of a long-term bond these days." Using the compound interest formula, with a principal of 25,000 and annual compounding, the amount for stocks and bonds, denoted by As and Ab, respectively, are Ax=25000(1+0.07)tAb=25000(1+0.0155)t Problems 1. What is the difference between linear growth and exponential growth? 2. What is the nominal value of the stock portfolio after 40 years? 3. What is the nominal value of the bond portfolio after 40 years? 4. Use Maple to plot As and Ab for t from 0 to 40. (Hints can be found in the appendix.) 5. Assuming a 3 percent inflation rate, the adjusted amounts are As=25000[1+(0.070.03)]tAb=25000[1+(0.01550.03)]t Repcat Problems 2,3, and 4 with the inflation adjusted formulas. 6. (Extra) Repeat Problem 5, using the current projected annual rate of inflation for the U.S. State how you obtain the inflation rate. Return of a 125,000 investment over 40 yeark, assuming a a percent inflation rate Compeund interest rormus The amount A ufter t years duc to a principal P invested at an annual interest rate r compounded n times per year is A=P(1+nr)n