In how many years will it take a certain investment to triple itself if the investment is compounded annually at 5.4%

Answer 1

Use the formula for compounding interest:

FV = PV(1+r/n)^ny where:

1. FV = Future Value
2. PV = Present Value
3. r = annual interest rate in decimal form
4. n = Compounding terms per year
5. y = years

For your particular problem we have:

1. FV = 3 (because the current value is being tripled)
2. PV = 1 (because no specific PV was given you can use 1)
3. r = 0.054
4. n = 1 (because it is compounded annually, or once a year)
5. y = to be determined

Putting your information into the formula gives:

1. 3=1(1+.054/1)^1y , we can simplify this by getting rid of the 1 coefficients
2. 3 = (1.054)^y

We will have to apply the ln function to both sides in order to solve for y

1. ln(3) = ln(1.054)^y
2. ln(3) = y ln(1.054) .... using the property of logarithms ln(A^B) = B ln(A)
3. this gives us y = ln(3) / ln(1.054) = 20.889 which is about 21 years

So, it will take approximately 21 years for a certain investment to triple itself if it earns 5.4% interest compounded annually.

Hope this was helpful.

Please leave a comment if it was (or wasn't) helpful for you.

David