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29 May, 09:56

Arnold learned something very valuable as a teenager from his dad. He was told to invest $1,000 at 12% interest at age 20 and leave it alone until age 65. Arnold's dad knew that one strategy that wealthy people use is to exercise selfminusdiscipline to never touch this longminusterm plan. Arnold is very happy he applied his dad's advice. Approximately how long will it take Arnold's savings to grow into $2,000?

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  1. 29 May, 11:26
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    The investment of $1000 that yields 12% interest per year would become $2000 in 6 years' time as shown by the calculation below

    Explanation:

    In determining the how long it would take for the investment to become $2000, the future value formula stated below is used.

    FV=PV * (1+r) ^N

    FV is the $2000

    PV, present value is $1000

    r is the rate of return at 12%

    2000=1000 * (1+0.12) ^N

    2000/1000=1.12^N

    2=1.12^N

    by taking log of both sides the equation becomes

    ln 2=N ln 1.12

    N = ln 2/ln 1.12

    N=6.116255374

    approximately N is 6 years
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