In Chapter 12, we looked at some long-term data on returns in both the stock and the bond market. This data was from Jeremy Siegels books, The Future for Investors and Stocks for the Long Run. Siegel tells us that, over the period from 1802 2005, the long run average real return in the US equity market is 6.8% and it is 3.5% in the bond market. Based on Siegels data, answer the following three questions.

If a relative invested $1,000 in the equity market in 1802 and allowed it to grow at 6.8% for the next 205 years, how much would the investment be worth in 2007?

Answer

If a relative invested $1,000 in the bond market in 1802 and allowed it to grow at 3.5% for the next 205 years, how much would the investment be worth in 2007