How much money will i have after 3 years?
 

Ok, i need some help with a math problem regarding stocks and compound returns.

I start with $8,000. I put in $500 a month into my account. I make 50% per year. (In other words, my portfolio at the end of each year is up 50%.)

At the end of 3 years, how much money will i have?

Please show work and thanks in advance! [img]/images/graemlins/smile.gif[/img]

Post deleted by Mat Sklansky
 

Re: How much money will i have after 3 years?
 

Not sure I completely get what you are asking but...
$500 x 12 months = $6000 + the initial 8k = 14k after first year.
50% return on 14k = 7k
21k beginning of year 2 plus $6k = $27k + 13.5k = 40.5k
40.5k beginning of year 3 plus $6k = 46.5k + 23.25k =

$69,750

AMIRITE?

Post deleted by Mat Sklansky
 

Re: How much money will i have after 3 years?
 

http://www.dinkytown.net/java/CompoundSavings.html

Re: How much money will i have after 3 years?
 

It's all related to the future value of your money....

FV($8000, 3 year, 50% interest) = 8000*(1.5)^3 = $27,000

The $500/month annuity is valued at:

FVAF($500/month, 36 months, %50/36 interest rate) =

(((1 + .5/12)^36 - 1) / .5/12)($500)

= $40169.52

so you end up with $67169.52

Thats the real anwser. Your teacher however is probably going to want to see something like this...

Year 1
---------
$8000 + $6000 = $14000 + 50% = $21000

Year 2
--------
$21000 + $6000 = $27000 + 50% = $40,500

Year 3
-------
$40,500 + $6000 = $46,500 + 50% = $69750


So, thank me for doing your home work by sending $10 to "Tickner" on pokerstars.

Re: How much money will i have after 3 years?
 

[ QUOTE ]
Its irrelevant. You'll be one of the richest people on earth within two years. Once you can prove those returns you'll have billions of dollars of capital to work with, get to keep 30% of the profits for yourself and have a team of Harvard MBA's to do your accounting for you.

[/ QUOTE ]

it would be irrelevant if i was a hedge fund manager working with 30 billion dollars, but im not.

50% return per year working with only 8-25k is not hard at all, especially if you play options.

the more money you have, the harder it is to make those big returns.

if a hedge fund manager had only 25k to work with, you're damn right he'd be up 200%+ by end of the year. THe more money someone has, the harder it is to find buyers who want to purchase so many shares. Hence, they need to diversify as much as possible, which in effect, lowers there return rate because its so much safer.

Re: How much money will i have after 3 years?
 

[ QUOTE ]
[ QUOTE ]
Its irrelevant. You'll be one of the richest people on earth within two years. Once you can prove those returns you'll have billions of dollars of capital to work with, get to keep 30% of the profits for yourself and have a team of Harvard MBA's to do your accounting for you.

[/ QUOTE ]

it would be irrelevant if i was a hedge fund manager working with 30 billion dollars, but im not.

50% return per year working with only 8-25k is not hard at all, especially if you play options.

the more money you have, the harder it is to make those big returns.

if a hedge fund manager had only 25k to work with, you're damn right he'd be up 200%+ by end of the year. THe more money someone has, the harder it is to find buyers who want to purchase so many shares. Hence, they need to diversify as much as possible, which in effect, lowers there return rate because its so much safer.

[/ QUOTE ]

QFT...i think buffett was quoted here earlier saying something like 1 million dollars is easy to get 50% returns for

Re: How much money will i have after 3 years?
 

[ QUOTE ]
[ QUOTE ]
Its irrelevant. You'll be one of the richest people on earth within two years. Once you can prove those returns you'll have billions of dollars of capital to work with, get to keep 30% of the profits for yourself and have a team of Harvard MBA's to do your accounting for you.

[/ QUOTE ]

it would be irrelevant if i was a hedge fund manager working with 30 billion dollars, but im not.

50% return per year working with only 8-25k is not hard at all, especially if you play options.

the more money you have, the harder it is to make those big returns.

if a hedge fund manager had only 25k to work with, you're damn right he'd be up 200%+ by end of the year. THe more money someone has, the harder it is to find buyers who want to purchase so many shares. Hence, they need to diversify as much as possible, which in effect, lowers there return rate because its so much safer.

[/ QUOTE ]

Sure, you can't perform (or even google) one of the most basic finance calculations but 50% is in the bag. Post trades and results please.

I'd notify moderators but ahnuld can't be bothered to check that account or update his profile so what's the point.

J

Re: How much money will i have after 3 years?
 

[ QUOTE ]
It's all related to the future value of your money....

FV($8000, 3 year, 50% interest) = 8000*(1.5)^3 = $27,000

The $500/month annuity is valued at:

FVAF($500/month, 36 months, %50/36 interest rate) =

(((1 + .5/12)^36 - 1) / .5/12)($500)

= $40169.52

so you end up with $67169.52

Thats the real anwser. Your teacher however is probably going to want to see something like this...

Year 1
---------
$8000 + $6000 = $14000 + 50% = $21000

Year 2
--------
$21000 + $6000 = $27000 + 50% = $40,500

Year 3
-------
$40,500 + $6000 = $46,500 + 50% = $69750


So, thank me for doing your home work by sending $10 to "Tickner" on pokerstars.

[/ QUOTE ]

i disagree...

inserting the function "future value" based on a monthly rate of 3.437% = (1+50%)^(1/12)-1, we get that after 36 monthly periods at 3.437% interest compounded monthly = $34,557.17... (i just tested this and there may be a small discrepancy here: manually calculating this for 36 months comes to $35,741.92 vs. the $34,557.17 FV calculates in excel...)

you can test this by taking (1+3.437)^(12) -1 = 50%. so the monthly return is definitely 3.4336608...%.

i'm also not 100% certain about splitting the two up and calculating them separately though they are mathematically similar. i've had champagne and thus may be a little off here...

so i did a quick simulation. starting with $8000 in month 1 (11/1/2007) and assuming that the first month there is no $500 contribution, the value after the first month is $8,275 = (1+3.437%)*8000

thereafter, the value from the previous month has $500 added to it (i.e. there are 35 total $500 contributions) and the return of 3.437% is applied to that...i.e. ($8275 + $500)*(1+3.437%)=$9076)

follwoing this through until october 2010 (36 months of compound returns later), we get that the value of this investment is $61,054.

that is the answer i'd go with.

Barron

Re: How much money will i have after 3 years?
 

[ QUOTE ]
Its irrelevant. You'll be one of the richest people on earth within two years. Once you can prove those returns you'll have billions of dollars of capital to work with, get to keep 30% of the profits for yourself and have a team of Harvard MBA's to do your accounting for you.

[/ QUOTE ]

Uh, no. As others have mentioned, 50% is not all that unusual.

Re: How much money will i have after 3 years?
 

I'm gonna go with:

PV= 8,000
N=36
I=3.437
PMT=500
CPT>FV

Re: How much money will i have after 3 years?
 

[ QUOTE ]
I'm gonna go with:

PV= 8,000
N=36
I=3.437
PMT=500
CPT>FV

[/ QUOTE ]

yea, makes sense.

payment should be at the end of period though since otherwise you get it on $8500 for the first month.

using this gives you $61554.42
my method gave $61054.42

the difference here is that the FV calc gives an extra $500 payment at the end of the series.

good to know i was right and am not crazy [img]/images/graemlins/smile.gif[/img]

Barron

Re: How much money will i have after 3 years?
 

You are EXPECTING a 50% a year for three years.....geeez gimme a break

Without EXTREME risk to your 8K + the $500 per month addtional monies,as Blueman implied,your ROR is near 100%

Unless you are doing something ILLEGAL...thats abit of an overly optimistic return to expect

Re: How much money will i have after 3 years?
 

guys, OP asked a simple question:

starting w/ 8k, putting in 500 each month at an annual rate of return of 50%, how much money will he have in 36m onths?

thats all he asked [img]/images/graemlins/smile.gif[/img]

Barron

Re: How much money will i have after 3 years?
 

[ QUOTE ]
guys, OP asked a simple question:

starting w/ 8k, putting in 500 each month at an annual rate of return of 50%, how much money will he have in 36m onths?

thats all he asked [img]/images/graemlins/smile.gif[/img]

Barron

[/ QUOTE ]

LOL, I thought that was funny too, I just figured this was some kind of school problem or something lol, don't get so serious about it.

Re: How much money will i have after 3 years?
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Its irrelevant. You'll be one of the richest people on earth within two years. Once you can prove those returns you'll have billions of dollars of capital to work with, get to keep 30% of the profits for yourself and have a team of Harvard MBA's to do your accounting for you.

[/ QUOTE ]

it would be irrelevant if i was a hedge fund manager working with 30 billion dollars, but im not.

50% return per year working with only 8-25k is not hard at all, especially if you play options.

the more money you have, the harder it is to make those big returns.

if a hedge fund manager had only 25k to work with, you're damn right he'd be up 200%+ by end of the year. THe more money someone has, the harder it is to find buyers who want to purchase so many shares. Hence, they need to diversify as much as possible, which in effect, lowers there return rate because its so much safer.

[/ QUOTE ]

Sure, you can't perform (or even google) one of the most basic finance calculations but 50% is in the bag. Post trades and results please.

I'd notify moderators but ahnuld can't be bothered to check that account or update his profile so what's the point.

J

[/ QUOTE ]

Obviously, there's some discrepency in the answers. I too got 69,750, but after thinking about it for a while, I wanted to double check or see if there were other ways of answering the question. I have to read over some of the replies again to check the work, but 69,750 could very well be wrong.

As for 50% returns per year, I can't believe you people think it is that hard. Look for emerging markets (BRIC-Brazil, Russia, India, CHINA), use technical analysis, do some research, learn options, insider buying... the works.

Perfect example:

2 Weeks ago I was looking at high growth spec stocks and came across Fuel Tech (FTEK). On Sept. 27, the CEO increased his holdings by 20%, as well as 3 other directors purchased shares all within two weeks of each other. It was about 45% off its 52 week high and T/A showed it was oversold and due for a sharp rebound. Furthermore, it just recieved an upgrade from a firm and recently received orders worth over 5 million from CHINA. There was no doubt that this thing was going up. It should hit 40 six-eight months from now, especially since I believe China will want more fuel cell technology with the olympics coming right around the corner.

And there are a ton of stocks just like this...

DISCLOSURE: I own shares of FTEK.

Re: How much money will i have after 3 years?
 

Simplify the problem with the Ruleof72.

Take 72 and divide by your return.

Take 72 and divide by 50% return.

Your money doubles in roughly: 1.44 years

Therefore your 8K is roughly 16 in about 15 months.

Do the same with your 500 deposits.

No one gets 50% consistently without huge volatility.

As a general rule, expect drawdowns equal to your return.

For example for a 35% return expect a 35% drawdown at some point during the 12-month measuring period.

If your return consistently and significantly beats your largest equity drawdown during the measuring period, you are very good.

Re: How much money will i have after 3 years?
 

its definitely easier to make big returns (percentage-wise) with less money. Starting with 80k im up 22% in 5 months. I am absolutely murdering the market, mainly by playing these very small stocks that seem to have wild predictable price fluctuations for no good reason. But that will not work if i had 10mm to work with instead, I'd have to go after the bigger stocks that are harder to make money off of.

Re: How much money will i have after 3 years?
 

61,554. wtf guys, this is like intro to finance. Im locking this thread because of our policy to not get homework spam. If you want to talk about realistic returns when taking into account size, feel free to start a new thread.