The interest rate that the investor needs to earn to reach this goal is 9.05%
What is future value?
Future value means the equivalent amount of an amount saved in a bank account or invested after the amount has earn interest over the period of investment, in this case, eight years, which means that we can determine the interest rate over the 8-year investment period using the future value formula provided below:
FV=PV*(1+r)^N
FV=future value=$40,000
PV=$20,000
r=interest rate earned=unknown
N=years of investment=8
$40,000=$20000*(1+r)^8
$40,000/$20,000=(1+r)^8
2=(1+r)^8
2 can be rewritten as 2^1
2^1=(1+r)^8
divide indexes on both sides by 8
2^(1/8)=1+r
r=2^(1/8)-1
r=9.05%
The investor would earn an interest rate of 9.05% every year of the investment.
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