Answer:
about 8.66 years
Step-by-step explanation:
The multiplier of account value when interest is compounded continuously is ...
k = e^(rt)
where r is the annual interest rate, and t is the number of years.
<h3>Setup</h3>
We want to find t when k=2 and r=0.08. Putting these values in the formula gives ...
2 = e^(0.08t)
<h3>Solution</h3>
Taking logs of both sides, we have ...
ln(2) = 0.08t
t = ln(2)/0.08 = 0.693147/0.08 ≈ 8.66
It takes about 8.66 years to double the amount.
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<em>Additional comment</em>
If the interest rate is expressed in integer numbers of percentage points (R%), then the doubling time is ...
t = 100·ln(2)/R ≈ 69.3147/R
Here, that is 69.3147/8 ≈ 8.66.
The "rule of 72" is used to estimate the doubling time for periodically compounded interest at rate R%. That rule tells you the time is t ≈ 72/R. For most interest rates and compounding frequencies in a reasonable range, this gives a time within a reasonable amount of error.
For continuously compounded interest, we have shown the doubling time in years is 69.3147/R. (The exact value of the constant is 100·ln(2).) For the purpose here, a constant of 69.3 gives an estimate accurate to 3 sf.
