1.21 Gigawatts!
It was in an accounting class all about debits and credits that I figured out I wanted to study finance. Before I became a finance professional, I also had to take that economics class where it seemed like every day all they talked about was widgets. Since not everyone earns or spends in US dollars, it’s about time we had a name for an unnamed currency in finance that fits the bill. Enter the gigawatt.
I know, I know, a gigawatt is a unit of power. But I wouldn’t know that, and it might not ring a bell for you, had it not been for the Hollywood blockbuster Back to the Future. This movie was an instant classic.
In an introductory finance class, a classic first example that communicates the power of compound “interest” might be presented as follows (in the gigawatt currency):
1.00 gigawatt
10% interest rate (what I can’t help but specify is the true investment yield)
2-year investment period
This example assumes that there are no recurring payments (other deposits or withdrawals) over the investment period. (See why the word interest is so last year: there is a spectrum of investments, some that pay interest and some that don’t, which is why investment yield is a better way of thinking about return on investment.)
Copyright 2024 Brent Pritchard. All rights reserved.
What do you estimate for the future value of a 1.00 gigawatt investment after two years assuming a 10% true annual investment yield? 1.21 gigawatts!
Brent Pritchard is an author and college finance lecturer with over two decades of industry experience and cofounder of Boxholm Press, LLC, a family-owned-and-operated publishing company providing educational content, products, and services. He pioneers an innovative and approachable new way of learning and teaching the Time Value of Money as well as thought leadership in other business topics. His most recent book is Would Your Boomerang Return? You can contact him on his website here.