Find the time required for $2500 to amount to $3000 at 6% compounded quarterly

1 answer

To find the time required for an investment of $2500 to amount to $3000 at an interest rate of 6% compounded quarterly, we can use the formula for compound interest:

\[ A = P \left(1 + \frac{r}{n}\right)^{nt} \]

where:

  • \( A \) is the future amount of money (final amount),
  • \( P \) is the principal amount (initial investment),
  • \( r \) is the annual interest rate (as a decimal),
  • \( n \) is the number of times that interest is compounded per year,
  • \( t \) is the time in years.

Given:

  • \( A = 3000 \)
  • \( P = 2500 \)
  • \( r = 0.06 \) (which is 6% as a decimal)
  • \( n = 4 \) (since the interest is compounded quarterly)

We substitute these values into the formula:

\[ 3000 = 2500 \left(1 + \frac{0.06}{4}\right)^{4t} \]

First, simplify \( \frac{0.06}{4} \):

\[ \frac{0.06}{4} = 0.015 \]

Now the equation becomes:

\[ 3000 = 2500 \left(1 + 0.015\right)^{4t} \]

This simplifies to:

\[ 3000 = 2500 \left(1.015\right)^{4t} \]

Next, we divide both sides by 2500:

\[ \frac{3000}{2500} = \left(1.015\right)^{4t} \]

Calculating \( \frac{3000}{2500} \):

\[ \frac{3000}{2500} = 1.2 \]

Now we have:

\[ 1.2 = \left(1.015\right)^{4t} \]

To solve for \( t \), we take the natural logarithm of both sides:

\[ \ln(1.2) = \ln\left((1.015)^{4t}\right) \]

Using the property of logarithms \( \ln(a^b) = b \cdot \ln(a) \), we can rewrite the right side:

\[ \ln(1.2) = 4t \cdot \ln(1.015) \]

Now, solve for \( t \):

\[ t = \frac{\ln(1.2)}{4 \ln(1.015)} \]

Now we compute the values:

  1. Calculate \( \ln(1.2) \):

\[ \ln(1.2) \approx 0.182321 \]

  1. Calculate \( \ln(1.015) \):

\[ \ln(1.015) \approx 0.014888 \]

Substituting these values back in gives:

\[ t = \frac{0.182321}{4 \cdot 0.014888} \approx \frac{0.182321}{0.059552} \approx 3.063 \]

Thus, the time required for $2500 to amount to $3000 at 6% compounded quarterly is approximately:

\[ \boxed{3.06} \text{ years} \]