Fundamentals of Financial Manageme...
Solutions
Fundamentals of Financial Manageme...
TIME FOR A LUMP SUM TO DOUBLE If you deposit money today in an account that pays 4% annual interest, how long will it take to double your money?
To determine: The time period in which the money will be doubled.
Introduction:
Present value:
The present value refers to that value which is the current value and by which the future value of annuity is determined. The calculation of the future value depends on the present value which is calculated on a discounted rate.
Future value:
The future value is an investment value which will be realized in the future. With the help of the calculation of future value, an analysis of the amount to be invested can be made. This is very useful for the financial users and investors.
Given,
The rate of interest is 4% or 0.04 annually.
Assumed,
The present value is $1
The future value is $2 as the amount gets doubled.
Time period
The formula to calculate the time period:
Where,
- FV is the future value,
- PV is the present value,
- I is the interest rate and
- N is the time period.
Substitute $1 for PV, $2 for the FV, and 0
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