In: Finance
How long will it take $700 to double if it earns the following rates? Compounding occurs once a year. Round your answers to two decimal places.
7%.
year(s)
11%.
year(s)
18%.
year(s)
100%.
year(s)
The Principal is $700
Interest Rate
Part -A) Interest rate is 7%
Amount = Principal + Interest
Amount has to be doubled so it will become $1400.
Compound Interest = Principal * ( 1 + Rate ) ^ Number of Years
1400 = 700 * ( 1 + 7%)^ N
1400/700 = (1.07)^N
2 = (1.07)^N
By using trial and error method,
2 = (1.07)^10.20
So, It will take 10.2 years to double the amount at 7% interest rate.
2.
Interest rate is 11%
Amount = Principal + Interest
Amount has to be doubled so it will become $1400.
Compound Interest = Principal * ( 1 + Rate ) ^ Number of Years
1400 = 700 * ( 1 + 11%)^ N
1400/700 = (1.11)^N
2 = (1.11)^N
By using trial and error method,
2 = (1.11)^6.66
So, It will take 6.66 years to double the amount at 11% interest rate.
3.
Interest rate is 18%
Amount = Principal + Interest
Amount has to be doubled so it will become $1400.
Compound Interest = Principal * ( 1 + Rate ) ^ Number of Years
1400 = 700 * ( 1 + 18%)^ N
1400/700 = (1.18)^N
2 = (1.18)^N
By using trial and error method,
2 = (1.18)^4.20
So, It will take 4.20 years to double the amount at 18% interest rate.
4.
Interest rate is 100%
Amount = Principal + Interest
Amount has to be doubled so it will become $1400.
Compound Interest = Principal * ( 1 + Rate ) ^ Number of Years
1400 = 700 * ( 1 + 100%)^ N
1400/700 = (2)^N
2 = (2)^N
By using trial and error method,
2 = (2)^1
So, It will take 1 years to double the amount at 100% interest rate.