Question

Question 5 We invest $ 100 in a bank that offers 4% nominal interest rate compounded monthly. How long (how many years) will it take to earn $20 in interest?

Answer 1

We have to earned $20 as interest menas our future value must be
=$100+20 =$120
Number of years can be calculated by using future value formula
FV= PV*(1+r)^n
Where,
FV= Future Value
PV = Present Value
r = Interest rate
n= periods in number
$120= $100*( 1+0.04)^n
120/100 =(1+0.04)^n
1.20 =(1+0.04)^n
n =4.65 years