Suppose the nominal annual interest rate on a mutual fund is 4.0% with monthly c

Question

Suppose the nominal annual interest rate on a mutual fund is 4.0% with monthly compounding. a. How long will it take to double your money if you invest today $10000 and make no other deposit? b. How long will it take to double your money if you invest today $10000 and then deposit $100 per month? Suppose the nominal annual interest rate on a mutual fund is 4.0% with monthly compounding. a. How long will it take to double your money if you invest today $10000 and make no other deposit? b. How long will it take to double your money if you invest today $10000 and then deposit $100 per month? Suppose the nominal annual interest rate on a mutual fund is 4.0% with monthly compounding. a. How long will it take to double your money if you invest today $10000 and make no other deposit? b. How long will it take to double your money if you invest today $10000 and then deposit $100 per month?

Explanation / Answer

Answer:

Case a:

Calculation of time Using future value formula :

Future value = Present value * (1+r)^n

Future value =$10000*2 =$20000

Present value = $10000

r= rate of interest = 4% /12 = 0.003333333 (Monthly)

n= time (in months)

Hence :

20000 = 10000*(1+0.003333333)^n

(1+0.003333333)^n = 20000/10000

(1+0.003333333)^n = 2

N = 55 months

Hence the money shall double in 55 months

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