Calculating the interest you'll earn
"Imagine you invest $10,000 for twenty years and reinvest everything you earn on that money. If your return is 4% per year, you have roughly $22,000 at the end of twenty years."
Jeff read these sentences in our information on superannuation. He wrote to us wanting to know how we had arrived at $22,000. He pointed out that people are often mystified about how calculations like this are made. Here's our answer.
Our answer
Using an Excel spreadsheet we used the formula 10000*1.04^20, where:
* means multiply
1.04 represents a compound 4% return
^means raised to the power for the number of years.
The formula produces the solution $21,911.23, which we rounded up to $22,000.
Read more about rates of return
FIDO Website: Printed 10/08/2008
