# Could anyone help me how much my profit would be in 5 years if I start at \$1000 and they said it would have a 5% income each year? [duplicate]

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?

• Well, the six-month T-bill is currently at 4.5%. Get it with a Treasury Direct account. Nov 16 at 21:30

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

• They said the interest on the first year will be added to the 2nd year. Is that what compounding interest mean? Do you think 5% is high that it could pose risk? Thank you so much for noticing my question. Nov 16 at 13:04
• That sounds like compounding interest. 5% is over the risk free interest in most of the world - so it would pose a risk (but without further knowledge of the investment i cant tell you) Nov 16 at 13:16
• I see, I see. Thank you so much again for your answer. I will check more on the investment I'm trying to enter. Nov 16 at 13:42
• If you know very little about investments (as you apparently do) I strongly recommend that you invest with a "safe" institution, such as your local bank or a very reputable brokerage. You may not get the best rates, but you will also not be cheated or taken advantage of, which unfortunately is very common Nov 16 at 14:02
• @ChristineTibigVickers "they" is worrying. Who is "they"? A lot of "they" are scammers, although scammers usually promise you 1000%, not only 5% :) Nov 16 at 14:05

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.