The Value of Dennis's Mutual Fund Investment Today
Dennis's Investment Strategy
Dennis has been dollar cost averaging in a mutual fund by investing $1,000 at the beginning of every quarter for the past 5 years. He has been earning an average annual compound return of 11% compounded quarterly on this investment.
What is the value of the fund today?
Final answer: The value of Dennis's investment in the mutual fund today is $24,487.64. This was calculated using the future value of an annuity formula, taking into account the quarterly contributions and the compound interest.
Explanation
The value of Dennis's investment can be determined using the future value of an annuity formula because he is making regular contributions to his mutual fund. The formula is FV = P * [(1 + r/n)^(nt) - 1] / (r/n), where: P is the amount of each contribution, r is the interest rate, n is the number of compounding periods in a year, and t is the time in years. In this case, P=$1,000, r=0.11, n=4 (quarterly compounding), and t=5 years. When you plug these values into the formula, you get a result of $24,487.64. Thus, the value of the mutual fund today is $24,487.64.
Dennis has been earning an average annual compound return of 11% compounded quarterly on his mutual fund investment. How much is the value of the fund today after 5 years of making $1,000 quarterly contributions? The value of Dennis's investment in the mutual fund today is $24,487.64. This was calculated using the future value of an annuity formula, taking into account the quarterly contributions and the compound interest.