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CMA Foundation · Fundamentals of Business Mathematics and Statistics · Time Value of Money and Annuity - Simple and Compound Interest

At what annual simple interest rate will a sum of money double itself in 12.5 years?

The rate is 8% per annum. For money to double under simple interest, the interest must equal the principal, so rate times 12.5 years must equal one. That gives a rate of 1 divided by 12.5, which is 8 percent.

  1. A6%
  2. B8%Correct
  3. C10%
  4. D12.5%

Explanation

For doubling, interest equals principal, so P = P × r × 12.5, giving r = 1/12.5 = 0.08 or 8%. A 10% rate would double the money in 10 years, so it is wrong.

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