How much money will i have after 3 years?

[TrainHardDieHard]

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]

[Parallax]

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?

[dazraf69]

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

[Tickner]

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.

[TrainHardDieHard]

[ 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.

[technologic]

[ 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

[jaydub]

[ 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

[DcifrThs]

[ 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