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| *Ostroff, Fair and Company>>>Investing |
How would you calculate an investment that doubles in 5 years? |
Using $5,000 to arrive at $10,000 over 60 months. If I understand your question correctly There is a rule called as the 72 rule. Divide your rate of interest and the result is the number of years it will take to double your investment. So in your case if your ROI is @ 14.5% your investment should double in 5 years. It isn't THAT easy. There are 52 weeks a year. You will have to multiply that twice a year for 5 years. There is a rule of thumb in investing that a "five year double" is about a 15% compounded annual growth rate. The actual rate of return is either: (2^(1/5))-1 = 14.87% per year or (2^(1/60))-1 = 1.16% per month The formula is (1+total return)^(1/number of time periods) - 1 = rate of return per time period I work in the investment industry For a principal p invested at interest rate 100r% per annum for t years with interest compounded k times per year, the amount a at the end of the specified time is: a = p(1 + r/k)^(kt) a / p = (1 + r/k)^(kt) You want to find the interest rate r. 1 + r/k = (a / p)^(1/kt) r/k = (a/p)^(1/kt) - 1 r = k( (a/p)^(1/kt) - 1 ) Substituting t = 5yr, a/p = 2,and k = 12 (assuming monthly compounding): r = 12( 2^(1/60) - 1) = 0.1394 Percentage rate is 100r = 13.94%. |
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