Bank A pays 10% compounded annually, and bank B pays 10% simple interest. If you want to double your investment, compared to save the money in bank A, how many more years will you take if you save the money in bank B? 2.8 4.8 5.8
Bank A pays 10% compounded annually, and bank B pays 10% simple interest. If you want to double your investment, compared to save the money in bank A, how many more years will you take if you save the money in bank B? 2.8 4.8 5.8
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Bank A pays 10% compounded annually, and bank B pays 10% simple interest. If you want to double your investment, compared to save the money in bank A, how many more years will you take if you save the money in bank B?
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2.8 |
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4.8 |
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5.8 |
Expert Solution
Step 1: Formula
Compound Interest
Future value can be calculated using
FV = PV* (1 + r / n)nt
Where,
- PV = Present value
- FV = Future value
- r = Rate of interest (percentage ÷ 100)
- n = Number of times the amount is compounding
- t = Time in years
Simple Interest
A = P * (1 + rt)
A | = | final amount |
p | = | Present value |
r | = | Interest rate |
T | = | time (in years) |
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