Question

If money is invested at r percent interest, compounded annually, the amount of the investment will double in approximately 70/r years. If Pat's parents invested $5000 in a long term bond that pays 8 percent interest, compounded annually, what will be the approximate total amount of the investment 18 years later, when Pat is ready for college?

• A. 20,000$
• B. 15,000$
• C. 12,000$
• D. 10,000$
• E. 9,000$

Answer 1

Answer: (A)

20,000\Rightarrow$Wehavegiventhat$r$ = Percent interest.

$\Rightarrow$ We are also given that an investment with double in approximately $70/r$ years.

$\Rightarrow$ We are told to invest $\$5,000$ at $8\%$ for 18 years.

$\Rightarrow$ Put $r=8$

$\Rightarrow$ So, $\frac{70}{8}$ is about $9years$, meaning investment will double in $9years$.

$\Rightarrow$ In the first 9 years, $\$5,000$ doubles to $\$10,000$

$\Rightarrow$ In the next 9 years, $\$10,000$ doubles to $\$20,000$

$\therefore$ The approximate total amount of investment 18 years later, when Pat is ready for college is $\$20,000$.