finance????

by David Jenyns on May 15, 2011

Question by Finance F: finance????
Sven Smorgasbord is 35 years old is presently experiencing the “good” life. As a result, he anticipates that he will increase his weight at a rate of 3 percent a year. At present he weighs 200 pounds. What will he weigh at age 60?

Best answer:

Answer by Simon O
The answer is 418.76 pounds.

Ok. This is a ‘fairly’ simple growth question. The formula I’m using is for compound growth which I’m sure you’ve heard of, as you put this question in the right section. (Compound growth is used most in finance). This is how the formula looks:

FV = PV ( 1+i )^n

Where FV is future value (his future weight which is what you want). ‘i’ is the growth rate. 3% growth means i will be 0.03. And n is the number of years he’ll grow over, which is 60-35 = 25 years old. For this question the formula could be worded as:

Weight, multiplied by ((1+percentage growth) to the power of number of years he’ll be growing).

= 200*(1.03^25)

The answer is 418.76 pounds.

To help you understand. If you’re growing by 3 percent a year. then next year you will be 1.03 multiplied by the weight you are now. This would be 200 * 1.03

His weight in two years would be 200 * 1.03 (the weight after the first year) which will then grow by 1.03, so the above bit needs to be multiplied by another 1.03. So in two years he’ll be 200*1.03*1.03 or 200*1.03^2. You’ll notice the power is simply the number of years he’s been growing. After three years would be 200*1.03^3.

So it ends up being 200* (1.03 to the power of 25)

Good luck with any other questions.

Know better? Leave your own answer in the comments!

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