The U.S. stock market has returned an average of about 9% per year since 1900. This return works out to a real return (i.e., adjusted for inflation) of approximately 6% per year.
a. If you invest $100,000 and you earn 6% a year on it, how much real purchasing power will you have in 30 years?
b. If you invest $5,000 per year for 20 years, how much real purchasing power will you have at the end of 30 years? The interest rate is 6% per year.