Test Index

Time Value of Money

© examsnet.com

Question : 78 of 99

Marks: +1, -0

A sum of money doubles itself at compound interest in 10 years. In how many years will it become eight times?

20
30
40
35

Solution:

Concept:

At compound interest, if a sum doubles in 10 years, then the growth factor per decade is 2.

Explanation:

Let the principal be

P

and the rate be

r

per year.

Doubling:

2P = P(1+r)^{10}

→

(1+r)^{10} = 2

.

Eight times:

8P = P(1+r)^t

→

(1+r)^t = 8 = 2^3

.

Since

(1+r)^{10} = 2

, we have

(1+r)^t = [(1+r)^{10}]^{t/10} = 2^{t/10} = 2^3

.

Thus

\frac{t}{10} = 3

→

t = 30

years.

Answer:

30 years (Option B).

© examsnet.com

Go to Question:

Prev Question

Next Question