How long will it take for an investment to triple, if interest is compounded continuously at 8%?
It will take years before the investment triples.

Answers

Answer 1

Answer:

It will take 14 years before the investment triples

Step-by-step explanation:

Continuous Compounding

Is the mathematical limit that compound interest can reach if it was calculated and reinvested into an account's balance over a theoretically infinite number of periods.

The formula for continuous compounding is derived from the formula for the future value of a compound interest investment:

[tex]FV = PV\cdot e^{i.t}[/tex]

Where:

FV = Future value of the investment

PV = Present value of the investment

i     = Interest rate

t     = Time

It's required to find the time for an investment to triple, that is, FV = 3 PV, knowing the interest rate is i=8%=0.08.

Substituting the known values:

[tex]3PV = PV\cdot e^{i.t}[/tex]

Dividing by PV:

[tex]3 = e^{i.t}[/tex]

Taking logarithms:

[tex]\ln 3=i.t[/tex]

Solving for t:

[tex]\displaystyle t=\frac{\ln 3}{i}[/tex]

[tex]\displaystyle t=\frac{\ln 3}{0.08}[/tex]

t = 13.7 years

Rounding up:

It will take 14 years before the investment triples

Answer 2

It will take 37.5 years before the investment triples.

The formula for calculating the future value is expressed as:

[tex]A =Pe^{rt}[/tex]

P is the principal

r is the rate (in %)

t is the time (in years)

If the investment tripled, then A = 3P. The equation will become:

[tex]3P=Pe^{rt}\\3=e^{rt}\\ln3 =lne^{rt}\\rt = 3\\0.08t =3\\t =\frac{3}{0.08} \\t =37.5 years[/tex]

Hence it will take 37.5 years before the investment triples.

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Answers

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