What is the annual worth and future worth of the investment? Give the solution step by step?

Question

In 1970, when Wal-Mart Stores, Inc. went public, an investment of 100 shares cost $1,650. That investment would have been worth $12,283,904 on January 31, 2002. What is the annual worth and future worth of the investment? Give the solution step by step for annual worth method and future worth method?

Answer 1

Time value of money

PV=FV/(1+i)^n

PV=Present Value

FV=Future Value

i=interest rate

n=number of compounding periods

In your case

PV= -1650 (negative sign indicates money going out)

FV=12,283,904

n=32 (in years)

There fore;

i=32.13%

Answer 2

There is no formula it really depends on how well the company does. Some companies will take them 5 or 6 years of cooking the books before they start making any money. THe best formula for an anual return is self evaluation.

   Go look at the filiing for the company. Say a company is trading at $7 per share but you think they could gain value at there current growth rates. So you take a look at the average rate of growth that the company grows each year. We'll say 14% or something. So if a company grows at a 14% different each year. THat would be this.

      (7  * 0.14) + 7 + dividends = value of compnay at current growth for a year.  

    Then figure out that value and do the same thing. If you take all your dividends and buy more share you can get a nice compounding effect going on.

     Its pretty simple. WHat I do is look at there balance sheet. What is the market cap, average growth rate, volitity.