go to previous page   go to home page   go to next page

Answer:

If the interest is paid once at the end of the year you will have $1000 + $1000*0.05 = $1050.

Million Dollar Question

Usually banks pay interest daily or monthly, but for simplicity let us stick with interest paid once at the end of each year. At the end of the second year you will have $1050 + $1050*0.05 = $1102.50. Here is what your account looks like at the end of the first several years:

yearInterest for the YearEnd of Year Amount
11000*0.05=501050.00
21050*0.05=52.51102.50
31102.50*0.05=55.1251157.625
41157.625*0.05=57.881251215.50625
51215.50625*0.05=60.775311276.28156

What if you are interested in becoming a millionaire? How long will it take to reach one million dollars? There are formulas for this. (Computer spreadsheets have these formulas built in, as do financial electronic calculators.) But pretend that you don't know that.

QUESTION 2:

Take a guess: how long will it take to reach a million dollars?