Compound interest and exponential growth

Question

I have no idea how to start this. Please help.  

 

Oppenheimer has a mutual fund where an investment of $5000 at an annual interest rate of 10% compounded semianually over 25 years will yield a final value of $57,337.

 

• What would the effect of doubling the initial investment have on the final value after 25 years? 
• What would the effect of doubling the interest rate be on the final value of the investment after 25 years? (use the original $5000 investment) 
• What would the effect of doubling the rate that the investment compounds (quarterly instead of semianually) have on the final value? Use the original investment of $5000 and annual interest rate of 10%
• If you had the choice of changing the original parameters of the investment any of the three ways listed above would you choose and why? 

Answer 1

You'll want to start by using the compound interest formula:

 

A=P(1+r/n)^(nt)

 

A is the amount of money after a certain amount of time, P is the initial investment, r is the rate (as a decimal), n is the number of times the interest is compounded yearly, and t is the number of years you let the interest build up.

 

If you plug in the values given in the original statement, you should get $57,337 (do this to double check you're using the formula correctly).

 

Then you can apply the changes they suggest in the following parts of the problem to see which would have the greatest effect on the outcome.