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It's math time!

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.



( 7 pieces of cheese — Leave some cheese )
Apr. 12th, 2008 02:44 am (UTC)
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?
Apr. 12th, 2008 04:36 am (UTC)
Oops, left out the initial balance.

That is a correct answer for a starting value of $100
Apr. 12th, 2008 04:01 am (UTC)
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.
(Deleted comment)
Apr. 12th, 2008 04:36 am (UTC)
Apr. 12th, 2008 05:52 am (UTC)

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.)

Apr. 12th, 2008 12:55 pm (UTC)
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.
Apr. 12th, 2008 02:43 pm (UTC)
If you have a $200 investment that earns 10% per year

Where can I get in on that action? :-P
( 7 pieces of cheese — Leave some cheese )