Question

Diane's bank is offering 5% interest, compounded monthly. If Diane invests $10,500 and wants $20,000 when she withdrawals, how long should she keep her money in for? Round to the nearest tenth of a year.

Answer 1

The time period is 13 years.

Explanation:

Interest rate (r )= 5% or 5%/12 = 0.42% per months

The investment amount (Present value) = $10500

Final expected amount (future value) = $20000

Since we have given the initial amount and final amount. Therefore we have to calculate the time period for which the initial amount is kept in the bank.

Use the below formula to find the time period.

Future value = present value (1 + r )^n

20000 = 10500(1+0.0042)^n

1.9047619 = (1+0.0042)^n

1.9047619 = 1.0042^n

n = 153.74 months.

Time in years = 153.74 / 12 = 12.8 years or 13 years (round off)