Lauren invests $6500 in some antique furniture with the idea of selling it in 3 years time.
a)if the furniture appreciates by 4.5% p.a., how much will her investment be worth in 3 years time?
b) if inflation averages 3.6% p.a. over the 3 years, and a local bank offers interest rates of 4.2% p.a. compound interest, calculated montly, discuss the wisdom of Lauren's investment. (back up your statements with workings)
cheers for the help!!
Originally Posted by slanno
First year: 6500 * 104.5% = $6792.50
Second year: 6792.50 * 104.5% = $7098.16
Third year: $7098.16 * 104.5% = $7417.58
With the bank that Lauren invested at, she would earn $7371.21 over the 3 years. Alongside the inflation rate, the value would have been $7240.14. Lauren has been better off by $131.07.