Question

Question 2 i. How many years will it take for an investment of $7,500 to grow to $23,000 if it is invested at 8% annually? At what rate of interest must your savings of $10,000 be compounded annually for it to grow to $22,000 in 8 years? ii. (2.5+2.5-5 marks)

Question 2 i. How many years will it take for an investment of $7,500 to grow to $23,000 if it is invested at 8% annually? At what rate of interest must your savings of $10,000 be compounded annually for it to grow to $22,000 in 8 years? ii. (2.5+2.5-5 marks)

Answer 1

2]

i]

future value = present value * (1 + interest rate)^{number of years}

$23,000 = $7,500 * (1 + 8%)^{number of years}

number of years = log_1.08(23000/7500)

number of years = 14.56 years.

ii]

future value = present value * (1 + interest rate)^{number of years}

$22,000 = $10,000 * (1 + interest rate)⁸

interest rate = ($22,000 / $10,000)^1/8 - 1

interest rate = 10.36%.