Question 4: Become a millionaire. You and your friend just graduated from College and want to become millionaires. You both have $25,000 in savings. You invest in a bond ETF that averages 8% return per year and your friend invests in a stock ETF that averages 11% per year. Both of you contribute $10,000 per year to your investment. Both of you invest the $25,000 today and the first $10,000 annual contribution is in 1 year from today. A. How long will it take you and your friend to become millionaires (the value of your investment is worth more than $1m)? B. How large would your contributions have to be, in the bond ETF, to become a millionaire at the same time as your friend?
Bonus, extension of Question 4 (2 points): Imagine that you have a portfolio in which you invest 30% of your money in the bond ETF and 70% in the stock ETF. How long will it take you to become a millionaire? No need to consider diversification or risk.