With a 7% annual rate of return, Charity's $3,000 investment could grow to about $44,923 after 40 years due to the power of compound interest.
Charity is interested in investing money with the goal of growing the investment over time. If Charity purchased an investment vehicle with a 7% annual rate of return, her $3,000 investment could grow substantially over long periods, thanks to the effect of compound interest. For example, if she invests this amount at age 25 and lets it grow without making additional contributions or withdrawals, after 40 years at this rate of return, her investment could grow to approximately $44,923. This is based on the formula for compound interest, final value = initial principal (1 + rate of return)number of years.