Unlocking the Power of Compound Interest: How Your Money Grows Over Time

How does compound interest work to grow your money over time?

What happens when you invest $5000 in a bank account and it doubles every 4 years?

Understanding Compound Interest and Growth

Compound interest is a powerful concept that allows your money to grow exponentially over time. When you invest $5000 in a bank account and it doubles every 4 years, the growth of your investment follows a specific mathematical function.

Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods. This means that as time passes, the interest on your money is not only earned on the original amount invested but also on the interest that has been previously earned.

When you invest $5000 in a bank account and it doubles every 4 years, you are essentially experiencing exponential growth. The function that models the growth of this investment can be represented as f(x) = 5000 * 2ˣ, where x is the number of doubling periods.

To find out how much the investment will be worth after 8 doubling periods, you simply need to substitute x=8 into the function. By calculating f(8) = 5000 * 2⁸, you will arrive at the final answer: The value of the $5000 investment after 8 doubling periods will be $1,280,000.

This demonstrates the power of compound interest and how your money can grow significantly over time through smart financial decisions and investments.