Question

You have just inherited $580,000. You plan to save this money and continue to live off the money that you are earning in your current job. If you can invest the money in a bond that pays 4.71 percent interest annually, how long will it be before your inheritance is worth $1 million? (If you solve this problem with algebra round intermediate calculations to 5 decimal places, in all cases round your final answer to 2 decimal places, e.g. 8.72.)

Answer 1

11.86 years

Explanation:

Given:

Amount inherited = $580,000

Interest paid annually, r = 4.71%

Future value = $1 million = $1,000,000

Now,

Future value = Principle × ( 1 + r )ⁿ

here n is the number of years

thus,

$1,000,000 = $580,000 × ( 1 + 0.0471)ⁿ

or

1.724 = ( 1.0471)ⁿ

taking log both sides, we get

0.236 = n × 0.0199

or

n = 11.859 ≈ 11.86 years

Hence, it will take around 11.86 years