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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

TIME FOR A LUMP SUM TO DOUBLE How long will it take $300 to double if it earns the following rates? Compounding occurs once a year.

  1. a. 6%
  2. b. 13%
  3. c. 21%
  4. d. 100%

(a)

Summary Introduction

To identify: Time for a lump sum to double at 6%

Lump Sum is a large amount of money paid on a single occasion instead of paying small amount time to time. The amount has been paid for the value of an asset or for other purposes such as on a retirement.

Explanation

Given,

The present value is $300.

The double amount would be $600.

The interest rate is 6% or 0.06.

The formula to calculate time period,

PV=FV(1+i)n

Where,

  • PV denotes present value.
  • FV denotes future value.
  • i denotes the interest rate.
  • n denotes the number of years.

Substitute $300 for PV, $600(as it is double of investment) for FV and 0.06 for i.

$300=$600(1+0.06)n(1+0.06)n=$600$300(1+0

(b)

Summary Introduction

To identify: Time for a lump sum to double at 13%

(c)

Summary Introduction

To identify: Time for a lump sum to double at 21%

(d)

Summary Introduction

To identify: Time for a lump sum to double at 100%

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