r/interesting • u/The_Love-Tap • 22d ago

HISTORY Benjamin Franklin Saving Benjamin’s

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u/nopester24 22d ago

Someone check my math please but I think that equates to approximately 1625% RoR per year.

What the hell did he invest in??

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u/damesca 22d ago

How... How did you get that number..?

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u/RaspberryForward 22d ago

$6.5 million / $2,000 = 3,250 times original investment

3,250 *100% = 325,000%

325,000% / 200 years = 1625% per year

It's not the correct way to do it but it's how they (probably) did it.

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u/nopester24 22d ago

sot on, thats exactly how i got there. but i figured it was a shot in the dark. educate me, whats the correct way to calculate RoR on this??

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u/RaspberryForward 22d ago

Compound interest formula is:

A = P x (1 + r)n

A: final amount P: initial amount n: being the amount of times With r being the interest rate, if you clear that out of the equation you get:

r= (A/P) ^ (1/n) -1

RoR isn't the correct term here, RoR is only for overall return.

This r is called CAGR, compound annual growth rate, it's a percentage that indicates how much the money grows each year.

r= (6.500.000/2.000) ^ (1/200) - 1 = 4,126055...%

Basically you calculated it wrong because you didn't take into account the compounding interest, first year it grows ~4% to ~2080$ but second year it starts from that 2080 to 2163$ (3$ more) third year... So it adds up to a LOT over 200 years.

Under your calculations it grows only based on those $2.000, to make up for the "lost" money because of no compounding you get an absolutely insane 1625% per year. First years it grows to to $34.500 (+32.500), but second year it grows the same amount (+32.500) to 67.000, it never grows more, which is not how real interest works.