How do you figure out the answer to this math problem?

Question

okay if you have $1000 dollars, and you get 10% interest per year, how much will you have in 20 years?

Answer 1

Im Just Me is wrong because the interest would raise every year, e.g. Year one you would get 100 dollars, so in year two, you would get 10% of 1100 dollars and so on.

But I can't remember the formula to work this out, though there is one! Sorry!

Answer 2

It's Just Me has the right idea if the interest is not compounded.  That is, on long-term investments, you get interest on the interest left in the savings account.  That is, $1000 invested at 10% for one year earns $100.  However, if you leave that $100 in the account, the next year your interest is on $1,100, so you get $110 interest.  That added to the $1,100 give you $1,210 which earns interest for the next year.  This goes on for the whole 20 years.  However, many savings accounts compound more frequently than once a year--quarterly or monthly compounding are not uncommon.  Since doing the above calculations at least once for each of the 20 years is really time-intensive, but there is a formula to make it much easier.  The formula for compounding interest is:

P is the principal (the initial amount you borrow or deposit)

r is the annual rate of interest (percentage)

n is the number of years the amount is deposited or borrowed for.

A is the amount of money accumulated after n years, including interest.

When the interest is compounded once a year:

A = P(1 + r)n    (Note:  n is the power, not the raw number)

However, if you borrow for 5 years the formula will look like:

A = P(1 + r)5  (5th power)

This formula applies to both money invested and money borrowed.

Frequent Compounding of Interest:

What if interest is paid more frequently?

Here are a few examples of the formula:

Annually = P × (1 + r) = (annual compounding)

Quarterly = P (1 + r/4)4 = (quarterly compounding)

Monthly = P (1 + r/12)12 = (monthly compounding)

I don't have a calculator that goes beyond squaring, so if you have a relatively good calculator, you can probably us it to get the 20th power.  There is also a website where you plug in the variables, so you could use it to check your work:http://www.moneychimp.com/calculator/com...

Answer 3

Future Amount = Present Amount x (1 + InterestRate/100)^(Number of years)

F = P(1 + i/100)^n

where: F = future amount, P = present amount, i = interest rate (expressed as %), and n = number of years

F = ($1000)(1 + 10/100)^20

... = ($1000)(1.10)^20

... = $6,727.50

Answer 4

.10 x 1000 = 100  (thats how much you make a year)

100x20= 2000 (thats how much interest you have in 20 years)

2000 plus the original 1000 is 3000 (the total money you have in 20 years)  

Answer 5

You are repeating some mulitplication operation.

after one year = 1000 x 1.1

you do this multiple time 1000 x1.1 x 1.1 x 1.1 ...

after 20 years = 1000 x (1.1)^20

= 6727.5