With Windows Calculator
A few days ago I showed one of my flickr pictures to some teachers. The picture below had the caption that one thousand pounds invested in 1888 could be worth over £4 million now – if left alone at something like 7%.
Over that period 7% is a reasonable estimate. (remember the mortgage rates in 1994?).
And the calculation is easy to do with Windows Calculator.
To show how it works imagine we have £100 invested at 10%.
At the end of the year we have £100 plus 10% of £100 (£10) – which makes £110.
At the end of year two we now have £110 plus 10% of £110 (£11) – making £121.
Another way of saying ‘add 10%’ is to say multiply by 1.10
Our money is growing by 10%(the interest) multiplied by itself – like so -
Final money = £100 multiplied by 1.10*1.10 = £121.00
1.10 * 1.10 is 1.10 squared, which is often shown as 1.10^2 (in this case 2 = number of years)
Seven per cent interest for 2 years would be 1.07*1.07 or 1.07^2
7% interest since 1888 would be 1.07^years or 1.07^123 (number of years between 1888 and 2011).
Here’s Windows calculator – this is going to take a lot of tapping in – unless you click the view button and select scientific
Now you can see a button showing x^y. In our case x is 1.07 and y is 123. Simply type 1.07
press the x^y button
press the equals button -
What is shown here is the compounding effect on £1 – the effect on £1,000 is to multiply the answer by 1,000.