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Solving for i in A=P(1+i)^n

  1. Oct 23, 2007 #1
    I'm having some trouble understanding how to solve for i. This is the formula for compounding intrest. I'm reading this example which shows how to solve for i if you double your money in 5 years. So it gives this example:

    (A/P)^1/n - 1 = i

    So it gives A for 2 and P for 1, n would be 5 so the answer should be:

    (2/1)^1/n - 1 = i

    They shown the answer as 0.149 however I cannot get this same answer for whatever reason.

    When I put in 2/1 I get 2, then 2^1/5 would be 0.4, minus 1 would make it -0.6.

    If this answer is indeed right, could someone please show me what I'm missing.
     
  2. jcsd
  3. Oct 23, 2007 #2

    Galileo

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    [tex]2^\frac{1}{5}[/tex] can't be 0.4, since (0.4)^5 is way smaller than 1 (since 0.4<1).

    Since 0.4 = 2/5, you must've raised 2 to the 1th (which is two) and divided that answer by 5.
    If you're using a calculator, be sure to put in the brackets correctly: 2^(1/5)-1.
     
  4. Oct 23, 2007 #3
    I see what the problem was, I wasn't using brackets on my calculator. If I do 2^1/5 I get the wrong answer because it does 2^1 which is 2 then divides by 5 to get 0.4 instead of 2^(1/5) being 1.14869.....

    Thanks for the help on seeing my error.
     
  5. Oct 23, 2007 #4

    HallsofIvy

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    Yes, if you just put in "2^1/5", your calculator interprets that as (2^1)/5 = 2/5= .4.
    Use 2^(1/5) instead.
     
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