Question

In: Finance

Kari would like to save $10,000 for a down payment on a house. Illustrate the difference...

Kari would like to save $10,000 for a down payment on a house. Illustrate the difference in years it will take her to double her current $5,000 savings,

$5000 invested today at 6% would be worth $10000 in ? years.

$5000 invested today at 12% would be worth $10000 in ? years.

$5000 invested today at 18% would be worth $10000 in ? years

Solutions

Expert Solution

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

10000 = 5000 ( 1+ 6/100) ^ n

2 = (1+6/100) ^n

or 2 = (1.06) ^ n

Taking log on both sides we get,

log 2 = n log (1.06)

Hence, n = Log 2 / log (1.06)

or n = 11.8957 years

Hence the correct answer is 11.90 years.

----------------

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

10000 = 5000 ( 1+ 12/100) ^ n

2 = (1+12/100) ^n

or 2 = (1.12) ^ n

Taking log on both sides we get,

log 2 = n log (1.12)

Hence, n = Log 2 / log (1.12)

or n = 6.12 years

Hence the correct answer is 6.12 years.

-----------

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

10000 = 5000 ( 1+ 18/100) ^ n

2 = (1+18/100) ^n

or 2 = (1.18) ^ n

Taking log on both sides we get,

log 2 = n log (1.18)

Hence, n = Log 2 / log (1.18)

or n = 4.19 years

Hence the correct answer is 4.19 years.


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