Question

1 year(s) ago, Fatima invested 5,420 dollars. In 2 year(s) from today, she expects to have 7,960 dollars. If Fatima expects to earn the same annual return after 2 year(s) from today as the annual rate implied from the past and expected values given in the problem, then in how many years from today does she expect to have exactly 12,460 dollars? Round your answer to 2 decimal places (for example, 2.89, 14.70, or 6.00).

Answer 1

First we need to calculate the rate of return that amounts to 7960 in 2 years:

Value of account at time 0	PV	$       5,420.00
rate of interest	r	To be calculated
number of years	n	2
Future value	FV	$       7,960.00

So the rate is 21.19%

Now we can calculate the number of years it will take to accumulate 12,460

We are given the following information:

Value of account at time 0	PV	$       5,420.00
rate of interest	r	21.19%
number of years	n	To be calculated
Future value	FV	$     12,460.00

We need to solve the following equation to arrive at the required FV:

So it will take 4.33 years