Test Index

Time Value of Money

© examsnet.com

Question : 94 of 99

Marks: +1, -0

The time in which a sum of money will be doubled at

6\%

compound interest compounded interest compounded interest compounded annually approximately.

10 years
12 years
13 years
14 years

Solution:

Concept:

Use the compound interest formula to find the time to double the principal.

Explanation:

Let principal

P

, amount

A = 2P

, rate

r = 6\% = 0.06

, time

n

years.

Formula:

A = P(1 + r)^n

→

2P = P(1.06)^n

→

2 = (1.06)^n

.

Take log:

n = \frac{\log 2}{\log 1.06}

.

Approximate:

\log 2 \approx 0.3010

,

\log 1.06 \approx 0.0253

.

n \approx \frac{0.3010}{0.0253} \approx 11.9

years.

Check:

1.06^{11} \approx 1.898

(not enough),

1.06^{12} \approx 2.012

(slightly over).

Thus approximately 12 years.

Answer:

12 years

© examsnet.com

Go to Question:

Prev Question

Next Question