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27 September, 07:34

Glen wants to take a holiday that costs $8,850, but currently he only has $2,750 saved. if he invested his money at 8 percent interest compounded annually, how long will he have to wait to take his holiday? use a financial calculator to make the calculation.

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  1. 27 September, 08:34
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    Solution:

    A = P (1+r) ^n

    where,

    A = amount

    P = principal

    r = rate of interest

    n = number of years

    Putting values in the formula,

    8850 = 2750 (1+0.08) ^n

    8850/2750 = (1+0.08) ^n

    log will be used to solve "n" as it is in the exponent form, which gives,

    log (8850/2750) = n log (1+0.08)

    By solving, we get n = log (8850/2750) / log (1+0.08)

    Using financial calculator, value comes as 15.187 rounded to 15.19.

    So, he will have to wait for 15.19 years to take holidays as it will take 15.19 years to make $8850 from $2750 @ 8% annual compounding.
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