How Much for That Island?
To further illustrate the effect of compounding for long horizons, consider the case of Peter Minuit and the American Indians. In 1626, Minuit bought all of Manhattan Island for about $24 in goods and trinkets. This sounds cheap, but the Indians may have gotten the better end of the deal. To see why, suppose the Indians had sold the goods and invested the $24 at 10 percent. How much would it be worth today? Roughly 375 years have passed since the transaction. At 10 percent, $24 will grow by quite a bit over that time. How much? The future value factor is approximately:
(1  r )t =1.1375 ˜ 3,000,000,000,000,000
That is, 3 followed by 15 zeroes. The future value is thus on the order of $24× 3 quadrillion or about $72 quadrillion (give or take a few hundreds of trillions).