It's math time!

[captpackrat]

If you have a $200 investment that earns 10% per year, and you let the money grow, how much money would you have total at the end of 2 years?

If you're like 34% of Americans, you answered $240.  And you answered wrong.

Only 18% of Americans surveyed got the correct answer, $242.  (It's $20 interest for the first year, then $22 interest on $220 for the second year.)

Amazingly, 48% of Americans either gave an even worse answer or copped out.  No wonder the economy is in the toilet.

Comments

[marko-the-rat.livejournal.com]

Heh. I gave an even worse answer. I answered $121, but that's what you get for not providing full information (I assumed a starting figure of $100), or maybe I just invested in Enron?

[captpackrat.livejournal.com]

Oops, left out the initial balance.

That is a correct answer for a starting value of $100

[deffox]

If it pays a capital gains distribution while the share price goes down (making the 10% vanish), you get to pay more taxes while getting back less than the original investment.

[rigelkitty.livejournal.com]

You didn't say how much the initial investment was.

[captpackrat.livejournal.com]

D'OH!

[austin-dern.livejournal.com]

Unless the interest is compounded monthly, in which case the amount would be approximately $244.08. Compounded daily it would be something like $244.28.

So given that the period is unspecified I would accept $240 as the correct order-of-magnitude estimate. The error introduced by ignoring compounding over this period is never more than two percent, which is fine for a mental computation and adequate to check whether your accountant is robbing you blind. (Robbing you subtly requires a more detailed audit, of course.)

[altivo.livejournal.com]

I was going to say $242, but then realized that it actually depends on how often the interest is compounded. At 10% compound interest, typically compounded daily now, you end up with even more than that.

[dakhun.livejournal.com]

If you have a $200 investment that earns 10% per year

Where can I get in on that action? :-P