Question

A person invests 3000 dollars in a bank. The bank pays 4.25% interest compounded semi-annually. To the nearest tenth of a year, how long must the person leave the money in the bank until it reaches 5600 dollars?

Answer 1

The person must leave the money for approximately 14.8 years.

Explanation:

This can be calculated using the formula for calculating the future value as follows:

FV = PV * (1 + r)^n …………………………………. (1)

Where;

FV = Future value of the investment = 5600

PV = Present value of the investment = 3000

r = semiannual interest rate = 4.25% / 2 = 0.0425 / 2 = 0.02125

n = number of semiannuals = ?

Substitute the values into equation (1) and solve for n, we have:

5600 = 3000 * (1 + 0.02125)^n

5600 / 3000 = 1.02125^n

1.02125^n = 1.86666666666667

Loglinearizing both sides, we have:

nlog1.02125 = log1.86666666666667

n = log1.86666666666667 / log1.02125

n = 0.271066772286539 / 0.0091320695404719

n = 29.6829509548973

Since n is number of semiannuals, we divide the answer by 2 obtain the number of years as follows:

Number of years = 29.6829509548973 / 2 = 14.8414754774487

Rounding to the nearest tenth of year, we have:

Number of years = 14.8

Therefore, the person must leave the money for approximately 14.8 years.