Expert: Ahmed Salami - 12/26/2010

Question
My new business partner is a great investor, and is saying he can get approximately 10% profit on balance daily.  So I've been using this formula to figure out how it would compound over time.
principle(1+interest rate)^time, is this right, because to me it justs gives me an astounding figure, I mean, with this I should retire in a couple of months.  I am a little slow on formulas, so maybe I am doing something wrong, I'm still not sure if I believe him.  We are starting with $5000 and he takes 50% of profit weekly.  Can you give me some insight on this?

Answer
Hi Craig,
Well, 10% daily profit is quite astounding. The formula is correct though.
A = P(1 + r)^n
10% daily profit means that in just ten days you have like 2.6 times your principal. And in a month, more than 17 times.
$5000 at 10% daily profit in a week (5 or 7 days as it may be) gives an amount of
A = 5000(1 + 0.1)^5
= 5000(1.61)
= $8052
OR
A = 5000(1 + 0.1)^7
= 5000(1.95)
= $9743

And so, 50% of weekly profit would be anything from about $1500 to $2200 as a rough estimate.

Regards