Question

If you invest $1000 at an interest rate of 2.5% compounded continuously, calculate how many years. How long will it take for your investment to double?

Answer 1

Answer:

It will take about 27.7 years

Step-by-step explanation:

* Lets talk about the compound continuous interest

- Compound continuous interest can be calculated using the formula:  

 A = P e^rt  

• A = the future value of the investment, including interest

• P = the principal investment amount (the initial amount)

• r = the interest rate  

• t = the time the money is invested for

- The formula gives you the future value of an investment,  

  which is compound continuous interest plus the  principal.  

- If you want to calculate the compound interest only, you need

 to deduct the principal from the result.  

- So, your formula is:

 Compounded interest only = Pe^(rt)  - P

* Now lets solve the problem

∵ The invest is $ 1000

∴ P = 1000

∵ The interest rate is 2.5%

∴ r = 2.5/100 = 0.025

- They ask about how long will it take to make double the investment

∴ A = 2 × 1000 = 2000

∵ A = P e^(rt)

∴ 2000 = 1000 (e)^(0.025t) ⇒ divide both sides by 1000

∴ 2000/1000 = e^(0.025t)

∴ 2 = e^(0.025) ⇒ take ln for both sides

∴ ln(2) = ln[e^(0.025t)]

∵ ln(e)^n = n

∴ ln(2) = 0.025t ⇒ divide both sides by 0.025

∴ t = ln(2)/0.025 = 27.7 years

* It will take about 27.7 years