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21 February, 18:43

Newman Finley wishes to become a millionaire. His money market fund has a balance of $296,375 and has a guaranteed interest rate of 6%. How many years must Newman leave that balance in the fund in order to get his desired $1,200,000?

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  1. 21 February, 18:52
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    Investment period = 24 years

    Explanation:

    The total amount that an investment made today would become if invested at a particular rate for certain number of years is known as the future value.

    The $1,200,000 is the desired future value, the $296, 375 is the present value and the 6% is the interest rate.

    FV = PV * (1+r) ^n

    1,200,000 = 296,375 * (1.06) ^ (n)

    (1.06) ^ (n) = 1200000/96,375

    (1.06) ^ (n) = 4.048924504

    find the log of both sides

    n log 1.06 = log 4.048924504

    n = log 4.048924504/log 1.06

    n = 24

    It will take 24 years
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