You made your first $3,000 deposit today into a retirement account earning an average annual rate of 6%
How long will it take your deposit to reach a value of $50,000? How long will it take if instead you invest the money into an account earning 10% per year? After making your calculations, how does this information affect your decision-making regarding long-term investments?
What will be an ideal response?
Answer: n = = = 48.28 years vs. = 29.52 years.
Hopefully, the student will recognize that low interest rates, while often associated with lower-risk investments, have the risk of taking too long to meet future value objectives. With time frames such as in this problem, investors are often willing to invest in higher risk - higher expected return investments.
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