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I understand this maybe a question for https://quant.stackexchange.com/; but I believe the math is simple enough to understand.

In How many months at an interest rate of 1% per month does money have to be invested before it will double its value?

The answer is 70 Months

I tried the following equation:

Interest,I = Present Value,P * Interest Rate,i * Time Relative to Year,t

To double the money its supposed to be equal to the present value.

Present Value,P = Present Value,P * Interest Rate,i * Time Relative to Year,t

therefore

1 = 1*(0.01)*x/12; Simply calculate for X.

I get 1200. Am I doing anything wrong?

Community
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james
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  • The rule of 72 should show you that $1200$ is badly wrong. Another approach is that $(1+.01)^n \gt 1+0.01n$ is far greater than $2$ for $n=1200$ This approximation is essentially converting compound interest to simple interest. – Ross Millikan Jun 27 '15 at 03:13

1 Answers1

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You calculations are wrong. The correct growth capital formula is $(1+r)^n$ where $r=0.01$ and $n$ is unknown. So $(1+0.01)^n=2$ and $n*\log(1.01)=\log(2)$. Thus we have $n=\log(2)/\log(1.01)\approx 69.66\approx 70$

Alexander Vigodner
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