yego.me
💡 Stop wasting time. Read Youtube instead of watch. Download Chrome Extension

Expression for compound or exponential growth


3m read
·Nov 11, 2024

You put $3,800 in a savings account. The bank will provide 1.8% interest on the money in the account every year. Another way of saying that is that the money in the savings account will grow by 1.8% per year.

Write an expression that describes how much money will be in the account in 15 years. So, let's just think about this a little bit. Let's just think about the starting amount.

So, in the start, we're just going to put $3,800. We could view that as year zero. Year—actually let me write it that way. So the start is the same thing as year zero, and we're going to start with $3,800.

Now, let's think about year one. How much money will we have after one year? Well, we would have the original amount that we put, $3,800, and then we're going to get the amount that we get in interest. They say that the bank will provide 1.8% interest on the money in the account, so it'll be plus 1.8% times $3,800.

We could also write this as a decimal. This is equal to $3,800 plus—I'll just write—I'll switch the order of multiplication here. Plus $3,800 times 0.018.

1.8% is the same thing as 18,000 or 1.8 hundredths, depending on how you want to pronounce it. And so here, you might say, "Well, there's kind of an interesting potential simplification mathematically here." I could factor $3,800 out of each of these terms. I have a $3,800 here; I have a $3,800 here.

So why don't I factor it out—essentially undistributed it? This is going to be $3,800 times—when you factor it out here, you get a 1—plus—when you factor it out here, you get 0.018. So I could just rewrite this as $3,800 times 1.018.

So this is an interesting time to pause. We're not at the full answer yet—how much we have in 15 years—but we have an interesting expression for how much we have after one year. Notice that if the money is growing by 1.8%, or another way it was growing by 0.018, that's equivalent to multiplying the amount that we started the year with by one plus the amount that it's growing by, or 1.018.

And once again, why does this make intuitive sense? Because at the end of the year, you're going to have the original amount that you put—that's what that one really represents—and then plus you're going to have the amount that you grew by. So you multiply both the sum here times the original amount you put, and that's how much you'll have at the end of year 1.

What about year two? So year two—well, we know what we're going to start with in year two. We're going to start with whatever we finished year one with, so we're going to start with $3,800 times 1.018. But then it's going to grow by 1.8%, or grow by 0.018.

And we already said if you're going to grow by that amount, that's equivalent to multiplying it by 1.018. Well, this is the same thing as $3,800 * 1.018 to the 2 power.

I think you see where this is going. Every time we grow by 1.8%, we're going to multiply by 1.018. If we're thinking about 15 years in the future, we're going to do that 15 times. So one year in the future, your exponent here is essentially one; two years, your exponent is two.

So year 15—I can just cut to the chase here—so year 15, well that's just going to be, we're going to have the original amount that we invested and we are going to grow 1.018 15 times. So we're going to multiply by this amount 15 times to get the final amount.

And one of the fun things—this is actually called compound growth—where every year you grow on top of the amount that you had before. You'll see if you type this into a calculator that, even though 1.8% per year does not seem like a lot, over 15 years it actually would amount to a reasonable amount.

But this is the expression. They're not asking us to calculate it; they just want us to know an expression that describes how much money will be in the account in 15 years.

More Articles

View All
Warren Buffett: MAJOR Updates from the Berkshire Hathaway Shareholders Meeting 2023
Well, we made it everyone! I’m here in Omaha with Hamish, and just a few days ago we were lucky enough to go to the Berkshire Hathaway annual shareholders meeting to get all the latest news from the man himself, Mr. Warren Buffett. And of course, the real…
Sam Altman's Method for Clear Thinking
Speaker: No, I’m a huge notetaker. Oh, tell me about that—there’s all these like fancy notebooks in the world, yeah, you don’t want those, um, you definitely want a spiral notebook because one thing that’s important is you can rip Pages out frequently, an…
how to procrastinate productively
Do you procrastinate a lot? I’m sure you do. There are countless videos, books, podcasts, any sort of content about how not to procrastinate and, you know, just get up right away and finish all of your tasks. There are so many of them, and I’m sure that y…
Theoretical probability distribution example: multiplication | Probability & combinatorics
We’re told that Kai goes to a restaurant that advertises a promotion saying one in five customers get a free dessert. Suppose Kai goes to the restaurant twice in a given week, and each time he has a one-fifth probability of getting a free dessert. Let X r…
Ray Dalio & Bill Belichick on Learning from Failure
So another thing about us we were talking about is uh uh failure. Like I had my big failure in 1982. Like in my case, I um made a terrible call in the markets, and whatever it is, and I went broke. I uh lost money, and I had to borrow $4,000 from my dad t…
The Strange Tail of Spinosaurus | Podcast | Overheard at National Geographic
So, things to watch out for when we’re actually out in the field. And this is really serious. It kind of feels really surreal, and you think like, you know, this is like in a movie or something. But the problem is, in the movie, it’s stuntmen and fake sna…