Question

How long will it take for an investment to triple, if interest is compounded continuously at 8%?

Answer 1

Answer:

It will take 14 years before the investment triples

Step-by-step explanation:

Continuous Compounding

Is the mathematical limit that compound interest can reach if it was calculated and reinvested into an account's balance over a theoretically infinite number of periods.

The formula for continuous compounding is derived from the formula for the future value of a compound interest investment:

$FV = PV\cdot e^{i.t}$

Where:

FV = Future value of the investment

PV = Present value of the investment

i     = Interest rate

t     = Time

It's required to find the time for an investment to triple, that is, FV = 3 PV, knowing the interest rate is i=8%=0.08.

Substituting the known values:

$3PV = PV\cdot e^{i.t}$

Dividing by PV:

$3 = e^{i.t}$

Taking logarithms:

$\ln 3=i.t$

Solving for t:

$\displaystyle t=\frac{\ln 3}{i}$

$\displaystyle t=\frac{\ln 3}{0.08}$

t = 13.7 years

Rounding up:

It will take 14 years before the investment triples