The other day I happened to pick up a copy of my 11th grade math textbook published in 1992, and came across these two practical personal finance problems as a reminder of how much times have changed.
The most obvious difference between then and now is how far interest rates have fallen. In 1992, the yields on 30-year US Treasury bonds (yes, the ones maturing next year) mostly ranged between 7.4 and 8.0%, so long-term savings products paying fixed rates of interest of 9-10% were very doable and relatively safe. The less obvious question, and one these math questions did not go into, was whether the Swifts or Mr Tallchief would have chosen to lock in such a rate for the term of their investment horizon, or whether they would have chosen to locked in their rate for a shorter term in the hope that interest rates might go even higher, or at least not go down. Today’s lower interest rates are just as important as inflation in explaining why most people would not consider $400,000 in an IRA to be enough to retire on these days.