If I am to earn 5% annually and I started with $1000, how much would I have after 5 years? Is it too good to be true?
Is it compounding interest or do you get it paid out annually? Does the amount stays the same?
If it gets paid out it would be $1250, the formula is $1000 * 1,05 * 5
If its compounding interest it would be $1276,23, the formula would be $1000 * 1,05^5
5% is not abnormal - but it depends on what kind of investment it is. Interest is in theory tied to risk - so the higher the interest, the higher the risk
If the 5% is paid out every year, then your profit is 5% of $1000 x 5 years, or $50 x 5 = $250.
If the profit compounds, that is, it is reinvested, then you collect zero during the five years, but at the end you have 1.05 ^ 5 x $1000 = (approximately) $1277, so your profit is $277.
5% return is not unbelievable. Over the last few decades the stock market has averaged 7% per year. Normally, the greater the risk the greater the promised return. If someone is promising you a guaranteed 5% return, I'd say that's a bit high and I'd look into it before giving them large sums of money.