Compound Interest and Annuities Click  for Calculator
 

You want to invest $20,000 for 30 years  at 11 % interest compounded quarterly.  How much money will you have at the end of the 30 years?

Solve	Step
i = 0.11 ÷ 4 = 0.0275	k = 4, r = 0.11, Quarterly means 4 times a year
FV = PV(1 + i)kn	FV = 1,000,000, n = 30 years
FV = 20,000(1 + 0.0275)4(30)	Find the Future Value
FV = 20,000(1.0275)120 » 518,620.48
You would have $518,620.48 after 30 years. (before taxes)
Hint: don't round until you are completely finished with your calculations.

  

You want to invest $10,000 for 20 years  at 10 % interest compounded quarterly.  How much money will you have at the end of the 20 years?

	[Solution]

Let's say you want to retire in 30 years with a million dollars.  You invest some money in a mutual fund that expects to earn an average of 12% per year compounded monthly.  How much money do you need to invest?

Solve	Step
i = 0.12 ÷ 12 = 0.01	k = 12, r = 0.12, Monthly means 12 times a year
PV = FV(1 + i)-kn    = FV ÷ (1 + i)kn	Find the Present Value
PV = 1,000,000 ÷ (1 + 0.01)12(30)	PV = 20,000, n = 30 years
PV = 1,000,000 ÷ (1 .01)360 »  27,816.69
You would have to invest $27,816.69 to earn a million dollars after 30 years. (before taxes)
Enter 1000000 ÷ (1 + 0.12 ÷ 12) xy  (12 × 30) [enter or =] in your calculator
Hint: don't round until you are completely finished with your calculations.

 

Let's say you want to retire in 20 years with a million dollars.  You invest some money in a mutual fund that expects to earn an average of 8% per year compounded monthly.  How much money do you need to invest?

	[Solution]

Tutorials and Applets by
Joe McDonald
Community College of Southern Nevada