Q:

You invest $6500 into a mutual fund that is expected to earn 6% per year. How long will it take the fund to be worth $13,000?

Accepted Solution

A:
This is a compound interest problem so you cannot use the simple interest formula. Effectively the total amount is being compounded each year by 6%. There is a formula for compound interest but in this simple example you can work this out recursively.

year 1 = 6500
year2 = 6500*1.06 = 6890
year3 = 6890*1.06 = 7303
year4 = 7303*1.06 = 7741..
etc......
year12 = 11604*1.06 = 12338Β