Invests the inheritance in bonds

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Jimmy has studied the bond market for the last century, and has determined that the real interest rate is 2%. He has also studied the stock market, and determined that the prevailing real growth rate of stocks is 6%. Jimmy is 29, and has just inherited $40,000 (let us ignore the sad circumstances surrounding the untimely death of his favorite aunt).

a. If Jimmy invests the inheritance in bonds, how much can he expect to have (in 2016 dollars) when he retires at 65?

b. How much will he have if he puts the $40,000 in stocks instead?

Reference no: EM131196890

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