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How long does it take for an investment to quadruple in value if it is invested at 11% compounded continuously? Type the exact
Question
How long does it take for an investment to quadruple in value if it is invested at 11% compounded
continuously? Type the exact answer as your answer (no decimal approximations).
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Mathematics
3 years
2021-08-30T01:39:17+00:00
2021-08-30T01:39:17+00:00 1 Answers
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Answers ( )
Let’s assume we have $100 and an interest rate of 7%. For the $100 to quadruple it means that the future value would be $400. Thus, because we are talking about compounding daily we will set us the equation as follows:
100 * (1+1.07)x = 400
Then we will take 400 and divide it by 100 getting:
1.07X = 4
Now we have encountered a problem where we do not know exponent, so we will use logarithm to calculate such and transform our equation to: Log1.07(4)=X
Using our calculator we will find that it takes about 20.4895 days to quadruple the money invested under 7% interest rate compounded daily.
2nd: Using the same $100 but with the rate of 5.5% compounded continuously we will be using A=PERT formula
where:
P (principal) is equal to hypothetical $100
E (e) is a mathematical constant, which is approximately 2.718
R (rate) is the interest rate, in our case it is 5.5%
T (time) is the time required for money to grow
A (amount) is the final amount desired, which is 4 times larger of $100, thus $400
We have the following:
400 = 100 * e0.055t
400/100 = e0.055t
4 = e0.055t
Then we will apply natural log to both sides of the equations and get the following:
ln(4) = ln(e0.055t)
Since e is the base of ln(x) the equation simplifies to:
ln(4) = 0.055t
Using the calculator to find ln(4) we are getting:
1.38629 = 0.055t
Lastly find t
t = 1.38629/0.055
t = 25.20535202
Plug the answers back to the original equation to verify the answers.
1st part of the question answer: t = 20.4895
2nd part of the question answer: t = 25.20535202