Stock returns and retirement account: Suppose your retirement account has a balance today of $10,000 and you are 20 years old. Consider how the balance in your account evolves as you age under the different assumptions below. (If you like you can use Excel to solve this problem. Make sure to write what formulas you use.)
(a) Compute the balance in your account when you will be 25, 30, 40, 50, and 65 years old assuming the average annual rate of return is 6%. Assume there are no deposits or withdrawals in this account, so the original balance just accumulates.
(b) Do the same thing for rates of return 5% and 7%. How sensitive is the calculation to the rate of return?
(c) Plot your retirement account balance for these three scenarios (6%, 5%, 7%) on a standard scale.
(d) Plot those balances on log/ratio scale.