The first assumption is the interest rate is per year. Then the equation is: F/P = (1+i/t)(n*t)
Where:
i = Interest rate per year
t = The number of times interest is paid per year
n = number of years
P = Present value
F = Future value
We are given:
P = $5,000
F = $10,000
n = 10
t = 1
therefore the equation becomes:
10,000 = 5000(1+i/1)(10*1)
Using algebraic transposition:
(10,000/5,000)(1/10) - 1 = i = 0.07178 = 7.18%
Therefore to double one's investment requires a 7.18% interest rate.
