In its first 10 years a mutual fund produced an average annu

In its first 10 years a mutual fund produced an average annual return of 20.58%. Assume that money invested in this fund continues to earn 20.58% compounded annually. How long will t take money invested in this fund to double? It will take approximately year(s) for the money invested in this fund to double. (Round up to the nearest year.)

Solution

Equation for compounding is given by:

F = P*(1 + r/n)^(n*t)

n = compounded annually = 1

P = P, then F = 2*P

r = 20.58% = 0.2058

2*P = P*(1 + 0.2058)^t

2 = 1.2058^t

t = ln 2/(ln 1.2058)

t = 3.703 yrs = approximately 4 yrs