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Which amount will be worth more in the future? (1)    $300 invested monthly for 35...

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Finance

Which amount will be worth more in the future?

(1)    $300 invested monthly for 35 years with anaverage annual return of 10% compounded monthly.

or

(2)    $1,000,000 lottery you win 35 years fromnow

Note: You must support your response with acalculation!

Answer & Explanation Solved by verified expert
4.2 Ratings (765 Votes)

(1)    $300 invested monthly for 35 years with an average annual return of 10% compounded monthly will be more worthy in the future.

Future value
Option 1 $       11,38,874
Option 2 $       10,00,000
So, Option 1 has higher future worth.
Working:
Future value of annuity of 1 = (((1+i)^n)-1)/i Where,
= (((1+0.008333)^420)-1)/0.008333 i 10%/12 = 0.008333
= 3796.246142 n 35*12 = 420
Future value of monthly deposit = Monthly deposit * Future value of annuity of 1
= $                   300 * 3796.246142
= $ 11,38,874

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