Question

The value of a stock increases at a rate of 1/2% per year. If the initial value of the stock $40 a share, when will the value of the stock be $50? Round your answer to the nearest tenth of a year

Answer 1

After 45.7 years

Explanation:

∵ r = 1/2% per year

∵ P0 = $40

∵ Pn = $50

∵ Pn = P0 ( 1 + r/100)^n-1

∵ P0 is initial value , Pn is the value after n years , is the rate

∴ 50 = 40 (1 + 0.5/100)^n-1

∴ 50/40 = (1.005)^n-1

∴ 1.25 = (1.005)^n-1 ⇒ insert ln in both sides

∴ ln(1.25) = (n-1)ln(1.005)

∴ n - 1 = ln(1.25)/ln(1.005)

∴ n = ln(1.25)/ln(1.005) + 1 = 45.7 years