Amanda K.
asked • 02/02/16Much help needed! Please help!!!!!!
Suppose you have 125,000 in savings and you put in a bank account that earns 2% interest. How long would it take this amount to double?
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2 Answers By Expert Tutors
Inactive Tutor answered • 02/02/16
Tutor
New to Wyzant
125000 x 2%. 125000 x .02 = 2500 interest per year
125000/2500 = 50 years to double
Inactive Tutor
Patrick,
your answer is not accounting for the fact that in each
subsequent year after the first there is a higher amount
in the account.... It does not remain at a balance of
125,000. After 1 year the account has 127,500 so the
next time the interest is compounded it will be more
than a $2500 increase...
Report
02/03/16
Inactive Tutor
No wonder I can't make any money on the stock market.
Pat
Report
02/03/16
Inactive Tutor answered • 02/03/16
Tutor
New to Wyzant
Let's assume the interest is compounded annually,
or one time per year:
A = P(1+r/n)nt is compound interest formula
A = final or future amount = 250,000
P = principal investment = 125,000
r = 2% = .02
n = #times compounded per year = 1
t = time in years = to be found
250,000 = 125,000(1+.02/1)1t divide both sides by 125,000
2 = 1.02t take log of both sides
log2 = log1.02t
log2 = t(log1.02)
t = log2/log1.02
t = 35 years
The investment will double in 35 years
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Inactive Tutor
02/02/16