Question

4. Problem 5.04 Click here to read the eBook: Finding the Number of Years, N Problem Walk-Through TIME FOR A LUMP SUM TO DOUBLE If you deposit money today in an account that pays 10% annual interest, how long will it take to double your money? Round your answer to two places. years

Answer 1

Use the rule of 72.

Divide 72 with rate of interest, then you will get the time period when your invested amount becomes double.

72/10 = 7.20 years.

Therefore at the rate of 10% annual interest it will take 7.20 years for the amount invested today to become double.

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Formula method:

A= P(1+i)"

Where,

A = Amount

P = Principal Invested

i = rate of interest.

n = number of periods or time.

Since we want to double the amount , 'A' becomes '2P'.

That is:

2P = P(1+i)"

2P 41 = (1 +0.10)

2 = (1.10)

V2 = 1.10

n = 7.20 years.

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