Question

Find the doubling time of an investment earning 8% interest if interest is compounded continuously. The doubling time of an investment earning 8% interest if interest is compounded continuously is ____ years.

Answer 1

Explanation:

Using FV = PV(1 + r)^n where FV = future value, PV = present value, r = interest rate per period, and n = # of periods

1/PV (FV) = (PV(1 + r^n)1/PV divide by PV

ln(FV/PV) = ln(1 + r^n) convert to natural log function

ln(FV/PV) = n[ln(1 + r)] by simplifying

n = ln(FV/PV) / ln(1 + r) solve for n

n = ln(2/1) / ln(1 + .08) solve for n, letting FV + 2, PV = 1 and rate = 8% or .08 compound annually

n = 9

n = ln(2/1) / ln(1 + .08/12) solve for n, letting FV + 2, PV = 1 and rate = .08/12 compound monthly

n = 104 months or 8.69 years

n = ln(2/1) / ln(1 + .08/365) solve for n, letting FV + 2, PV = 1 & rate = .08/365 compound daily

n = 3163 days or 8.67 years

Alternatively

A = P e ^(rt)

Given that r = 8%

= 8/100

= 0.08

2 = e^(0.08t)

ln(2)/0.08 = t

0.6931/0.08 = t

t= 8.664yrs

t = 8.67yrs

Which ever approach you choose to use,you will still arrive at the same answer.