Question

Ben wants to double his money in eight years by investing it in a savings account with interest compounded annually. What interest rate must the savings account offer in order for his money to double in eight years?

Answer 1

The equation for compound interest is

Where A is the amount accumulated
P is the principle invested
r is the interest rate
n is the how often the interest is compounded each year
t is the number of years

A = P(1+r/n)^(n*t)

A = 2P
2P = P(1+r/n)^(n*t)
2 = (1+r/n)^(n*t)
2 = (1+r)^(t) [n = 1, because the money is compounded annually]
2 = (1+r)^(8) [t = 8, because Ben wants the money to double in 8 years]
1+r = 8th root of 2
r = (8th root of 2) - 1

The rate should be about 9.05%.

Hope you understand this problems :D

Answer 2

Thank you so much. (:

Answer 3

welcome :)