For an investment to double in value during a 12-year period,
a. What annually compounded rate of return must it earn? (Round your answer to two decimal places.)
Annually compounded rate of return %
b. What monthly compounded rate of return must it earn? (Round your answer to two decimal places.)
a. P = Po(1+r)^12 = 2Po
Divide both sides by Po:
(1+r)^12 = 2
Take Log of both sides:
12*Log(1+r) = Log 2
Divide both sides by 12:
Log(1+r) = Log 2/12 = 0.02509
1+r = 10^(0.02509) = 1.0595
r = 0.0595 = 5.95%
b. 12Comp./yr. * 12yrs. = 144 Compounding periods.
P = Po(1+r)^144 = 2Po
r = Monthly % rate expressed as a decimal.
Solve for r.
Use same procedure as part a.