Second Question: Future value You have $400 to invest. If you can earn 12% inter

Question

Second Question:

Future value You have $400 to invest. If you can earn 12% interest, about how long does it take for your $400 investment to grow to $800? Suppose the interest rate is just half that, at 6%. At half the interest rate, does it take exactly twice as long to double your money? Why or why not? How long does it take? If the annual interest rate is 12%, the number of years it takes to double your money is years. Round to two decimal places. If the annual nterest rate is Just half at 6%, the number of years it takes to double your money is years. Round to two decimal places. At half the interest rate, does it take exactly twice as long to double your money? (Select the best answer below.) OA Yes, it takes exactly twice as long to double your money regardless of the annual interest rate. OB, Yes, it takes exactly twice as long to double your money because the number of time periods is linearly related to the interest rate OB. Yes, it takes exactly twice as long to double your money because the number of time periods is linearly related to the interest rate. OC. No, it takes slightly less than twice as long to double your money because the money accumulated faster over longer time periods. OD. No, it takes more than twice as long to double your money because the money must be accumulated even longer at half the interest rate.

Explanation / Answer

Q1.

If the annual interest rate is 12% , the no of years it takes to double the money is 6.13 years .

800=400(1.12)^n , Or n =6.13

If the annual interest rate is 6% , the no of years it takes to double your money is 11.92 years.

800=400(1.06)^n , Or n =11.92

At half the interest rate it takes a little less than double the years in time to double the money and the correct answer is option C.

Q2.

FV= 300(1.08)^9=600.

So the future value of the deposit is $600

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