If you invest $5000 at 4% compounded semiannually, how long will it take for your investment to grow to $8,000. (in complete years)

1 Answer | Add Yours

justaguide's profile pic

justaguide | College Teacher | (Level 2) Distinguished Educator

Posted on

If an amount P is invested for n terms at a rate of interest of r, it grows to P*(1 + r)^n.

Here, the annual rate of interest is 4%, as the compounding is done semi-annually, the effective rate for a term is 4/2 = 2%.

Let the number of terms be n.

We have to solve 8000 = 5000*(1 + 0.02)^n

=> 8/5 = 1.02^n

take the log of both the sides

=> n = log(8/5) / log (1.02)

=> n = 23.73

The term n is in half years, 23.73 terms rounded to the nearest year gives 12 years.

The time taken for the investment to grow to $8000 is 12 years.

We’ve answered 317,785 questions. We can answer yours, too.

Ask a question