Description
Question:
You plan to invest in securities that pay 6%, compounded annually. If you invest $5,000 today, how many years will it take for your investment to grow to $30,000?
Answer:
F = P(1 + r)t
where
P = Initial investment
r = rate of interest per annum
t = time in years
F= Maturity amount (Principal and interest compounded annually)
Given:
P = $5,000
F = $30,000
r = 6% = 0.06
Hence,
$30,000 = $5,000 (1 + 0.06) t
=> (1.06)t = 30,000 / $5,000= 6
=> log (1.06)t = log (6)
=> (t) log( 1.06) = log(6)
=> t = log(6) / log( 1.06) = 0.77815125038 / 0.02530586526 = 30.75 years
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