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A bond pays interest at a rate of 3% compounded annually. How long it take an initial investment to double ?

Answer»

Solution :Each YEAR, the investment GROWS by factor of 1.03. Therefore, the growth factor after n year is `1.03^(n)`. SINCE the investment doubles when its growth factor is 2, we need to solve the EQUATION `1.03^(n)=2`. Take the log of both sides to get `nlog1.03=LOG2`. It follows that `n=(log2)/(log1.03)~~23.45` years.


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