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- 1). Write down the formula to compute compound interest: A = P(1 + r)^n. In this formula, A is the total value you will have based on the principal amount, P, at the defined rate of return, r, for the number of years invested, n.
- 2). Define your variables. Assume you have $10,000 in an IRA savings account that is earning 1 percent interest for the next five years.
- 3). Fill in the variables: A = 10,000(1 + 0.01)^5.
- 4). Calculate: A = 10,000 (1.01)^5 = 10,000(1.2762) = 12,762. Your IRA savings will be worth approximately $12,762 if the variables do not change in the next five years.
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