Question

#9-Suppose you receive the payment and immediately place the funds in a bank account that earns 5% interest. Which of the following comes closest to the length of time it'll take for this account to grow to $100?

"First payment"= $10 today

Answer 1

Amount Invested today= $10

Future Value = $100

Calculating the No of years it will take to reach $100:-

Future Value = Invested Amount*(1+r)^n

Where,

r = Periodic Interest rate = 5%

n= no of periods

$100 = $10*(1+0.05)^n

10 = (1.05)^n

Taking Log on both sides,

Log(10) = n*Log(1.05)

1 = n*0.02118930

n = 47.19 years

So, length of time it will take to grow $100 is 47.19 years

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