Living off interest
Posted by Jessamyn on November 22, 1997 at 00:24:34:
In response to My Q, written by Nora on November 21, 1997 at 18:48:52
] What I never understood is what does it really mean to have for exampel the wellknown income of ten thousand ayear? I mean, I could quite easily calculate my yearly income but these persons had no profession, no monthly income. What I'm trying to say is how do you know how much of that large sum you inherited you will have every year. I wonder if anyone will understand what I am trying to say here. Oh well, economy never was my thing.
Okay, here's how it works. Let's say you inherit $1,000 from your parents. You don't want to spend any of that money, so you put it in a savings account. The bank pays you 5% interest per year on that $1,000. In other words, every year the bank pays you 5% of $1,000, which equals $50. Meanwhile, your original $1,000 is untouched, so every year you get the same amount in interest: $50. Your annual income is $50.
Now, in order to be getting 10,000 pounds a year in interest, the amount you have in savings at the bank must be 20 times that, or 200,000 pounds. Do you see? 10,000 pounds is 5% of 200,000. That was the interest the bank pays you (or Mr. Darcy) every year.
So if you find out that Mr. X has inherited, say, 50,000 pounds, you can quickly calculate that he must be getting 5% of that per year, or 2,500 per year.
I hope this makes sense.
Posting followups to old messages is disabled; instead go to the main index and post a new message which mentions this one.