Thread: Compound Interest/Salary

The problem States: Suppose you just started a job at $40,000 per year, you are scheduled to be making %60,000 per year. Determine the annual exponential rate of increase that describes this situation. Assume that the same exponential rate of increase will continue for 40 years. Estimate your annual salary in 40 years.

So, i used the formula A=P(1+r/n)^nt and found the percentage to be approx. 8.448 percent. Then in 40 years i replugged in the numbers and found that i would make $1,025,270. I'm not quite sure thats right because it seems to be too much. Am i doing something wrong? Thanks.

Originally Posted by aussiekid90

The problem States: Suppose you just started a job at $40,000 per year, you are scheduled to be making %60,000 per year. Determine the annual exponential rate of increase that describes this situation. Assume that the same exponential rate of increase will continue for 40 years. Estimate your annual salary in 40 years.

So, i used the formula A=P(1+r/n)^nt and found the percentage to be approx. 8.448 percent. Then in 40 years i replugged in the numbers and found that i would make $1,025,270. I'm not quite sure thats right because it seems to be too much. Am i doing something wrong? Thanks.

You did not give enough infromation but I think you mean this:
1)You started with $40,000.
2)Ended with $60,000.
3)The number of times of interest a year is 12 times.
4)Solved for rate of interest.
I got the rate of interest to be 1.014% not what you say.
For the second part of the problem I get $900,000 exactly.