Question

16. Choose the best answer

Determine the interest rate required for an amount to double in five years if the interest is compounded annually.

Possible Answers:

i = 16.97%

i = 15.97%

i = 13.97%

i = 14.87%

Answer 1

Apply Rule 72 formula , If you want to double your amount in 5 year then devide 72 by 5 = 14.4

that means ans is near 14.4 which is 14.87 % and answer is D

Checking that our answer is correct or not with the help of example in excel

Let take intial investment be $1000

	Rate of interest	14.87%
Year	Opening	Interest	Closing
1	1000	148.700	1148.700
2	1148.700	170.812	1319.512
3	1319.512	196.211	1515.723
4	1515.723	225.388	1741.111
5	1741.111	258.903	2000.014

With the above example we can clearly see that our money will double in 5 year at the rate of 14.87 %