How long will it take for an investment of 2900 dollars to grow to 6800 dollars, if the nominal rate of interest is 4.2 percent compounded quarterly? FV = PV(1 + r/n)^ntAnswer = ____years. (Be sure to give 4 decimal places of accuracy.)

Respuesta :

ANSWER :

The answer is 20.3971 years

EXPLANATION :

The compounding interest formula is :

[tex]FV=PV(1+\frac{r}{n})^{nt}[/tex]

where :

FV = future value ($6800)

PV = present value ($2900)

r = rate of interest (4.2% or 0.042)

n = number of compounding in a year (4 : compounded quarterly)

t = time in years

Using the formula above :

[tex]6800=2900(1+\frac{0.042}{4})^{4t}[/tex]

Solve for t :

[tex]\begin{gathered} \frac{6800}{2900}=(1.0105)^{4t} \\ \text{ take ln of both sides :} \\ \ln(\frac{6800}{2900})=\ln(1.0105)^{4t} \\ \operatorname{\ln}(\frac{6800}{2900})=4t\operatorname{\ln}(1.0105) \\ 4t=\frac{\ln(\frac{6800}{2900})}{\ln(1.0105)} \\ t=\frac{\ln(\frac{6800}{2900})}{4\ln(1.0105)} \\ t=20.3971 \end{gathered}[/tex]