Figure 3.3: Effect of Compounding Periods: Stocks versus T.

Bonds
$7,000.00
$ 100 invested in stocks,
earning 11% a year, is
worth more than seen
times as much at the end
of 40 years than $ 100
invested in bonds, earning
5% a year.

$6,000.00

Future Value of $ 100

$5,000.00

$4,000.00
Stocks
T. Bonds

$3,000.00

$2,000.00
The compounding
effect increases
as the time horizon
increases.

$1,000.00

$0.00

Compounding Periods

Holding Perio Stocks

T. Bonds
1
$111.00 $105.00
2
$123.21 $110.25
3
$136.76 $115.76
4
$151.81 $121.55
5
$168.51 $127.63
6
$187.04 $134.01
7
$207.62 $140.71
8
$230.45 $147.75
9
$255.80 $155.13
10
$283.94 $162.89
11
$315.18 $171.03
12
$349.85 $179.59
13
$388.33 $188.56
14
$431.04 $197.99
15
$478.46 $207.89
16
$531.09 $218.29
17
$589.51 $229.20
18
$654.36 $240.66
19
$726.33 $252.70
20
$806.23 $265.33
21
$894.92 $278.60
22
$993.36 $292.53
23
$1,102.63 $307.15
24
$1,223.92 $322.51
25
$1,358.55 $338.64
26
$1,507.99 $355.57
27
$1,673.86 $373.35
28
$1,857.99 $392.01
29
$2,062.37 $411.61
30
$2,289.23 $432.19
31
$2,541.04 $453.80
32
$2,820.56 $476.49
33
$3,130.82 $500.32
34
$3,475.21 $525.33
35
$3,857.49 $551.60
36
$4,281.81 $579.18
37
$4,752.81 $608.14
38
$5,275.62 $638.55
39
$5,855.93 $670.48
40
$6,500.09 $704.00