Kate currently has 50,000 of stock market investments. She thinks that she will be able to generate a return of 5% pa on the investments over the next 10 years. What will the investments be worth at year 10? And, if inflation is forecast to be 3% pa, how much better off will she be in real (buying power) terms at year 10?

Investments worth 75,000; Real return over 10 years 20.0%

Investments worth 81,445; Real return over 10 years 20.0%

Investments worth 81,445; Real return over 10 years 21.2%