word problem

Question

Find the time required for money invested at an annual rate of 6% to double in value if the investment is compounded monthly. Round to the nearest hundredth of a year. (Hint: you will need to choose a starting value.)

Answer 1

Apply the formula for compound interest

                                     A = P(1+r)^x

where P is the invested money,  r- monthly rate, x - number of months. According to the problem A = 2P. Thus, if wedivide both sides of the formula by P we will obtain

                                            2 = (1+r)^x

Take logarithms of both sides:   ln2 = x ln(1+r).  Thus 

                                               x = ln2/ln(1+r)

r = 0.06/12 = 0.005. ln(1+0.005) = 0.005 (0.00498.. more precisely).  Hense, it follows x = ln2/0.005 = 138.6 months = 11.55 years.