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Consider an investment of $6000 that earns 4.5% interest. How long would it take for the investment to reach 1500 if the interest is compounded monthly?

User Charaf JRA
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1 Answer

1 vote

Answer:

20.4 years

Explanation:

The future value formula is ...

FV = P(1 +r/n)^(nt)

where P is the principal invested (6000), n is the number of times per year compounding occurs (12), r is the interest rate (.045), and t is the number of years.

Perhaps you're interested in a future value of $15,000 (not 1500). Then we can find t from ...

15000 = 6000(1 +.045/12)^(12t)

2.5 = 1.00375^(12t) . . . . . divide by 6000

log(2.5) = 12t·log(1.00375) . . . . . take logarithms

log(2.5)/(12log(1.00375)) = t ≈ 20.4

It will take 20.4 years for the investment to reach $15,000.

User David Baron
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