Individual B just received an inheritance of 100000 from a r

Individual B just received an inheritance of $100,000 from a relative. B is 25 years old and wants to allocate the money to an account for retirement at the age of 65 in 40 years. A brokerage firm has agreed to construct an asset portfolio that will yield 6% per year for the 40 year period. What will be the future value of the portfolio for B at time of retirement in 40 years.

Solution

The amount to be invested is $100,000. Time period is 40 years. The portfolio will yield 6% per year for the 40 year period. Find the future value of the portfolio at N = 40

FV = 100,000 (F/P, 6%, 40)

= 100,000*(1 + 6%)^40 = $1,028,572

This will be the future value of the portfolio after 40 years.