Question

What compound annual rate of return is required for an investment to double in: a) 12 years? b) 10 years? c) 8 years? d) 6 years?

Answer 1

To calculate the compound annual rate of return required for an investment to double, use the formula CAGR = (Final Value/Initial Value)^(1/Number of Years)-1. For a) 12 years: 5.97%, b) 10 years: 7.18%, c) 8 years: 9.05%, d) 6 years: 12.25%.

Step-by-step explanation:

To calculate the compound annual rate of return required for an investment to double, we can use the formula:

CAGR = (Final Value/Initial Value)^(1/Number of Years)-1

a) For an investment to double in 12 years, the compound annual growth rate (CAGR) is:

CAGR = (2/1)^(1/12) - 1 ≈ 0.0597 or 5.97%

b) For an investment to double in 10 years, the CAGR is:

CAGR = (2/1)^(1/10) - 1 ≈ 0.0718 or 7.18%

c) For an investment to double in 8 years, the CAGR is:

CAGR = (2/1)^(1/8) - 1 ≈ 0.0905 or 9.05%

d) For an investment to double in 6 years, the CAGR is:

CAGR = (2/1)^(1/6) - 1 ≈ 0.1225 or 12.25%