Doubling time with simple interest = 1 ÷ rate
Doubling time for simple interest calculation is quite simple if compared to compounded doubling time. As you may know that doubling time is the amount of time required to double the investment. Similarly, doubling time for simple interest basically helps to determine the time required on an interest bearing account to double an investment.
Simple interest is a type of interest where the investment or principle amount earns the profit. Contrary, compound interest is another type of approach where the principle along with interest from previous period collectively earns profit.
How doubling time with simple interest rate formula induced
To understand this concept first we have to look in the simple interest formula;
S = P (1 + rt)
Adding the assumption of doubling the investment to above equation, and we get;
2 = 1 + rt
Now if we subtract 1 from both sides of the equation, then we get;
1 = rt
Because doubling time formula focuses on the time essentially, that’s why we can divide both sides with rate and get the results same as available on top of the page.
Doubling time simple interest examples
For example an individual has a simple interest account which is offering a rate of 9% per annum. The principle amount of $1,800 will be invested, the person wants to calculate the time after which he/she will be able to get $3,600 in the account. Now if we put the values in the formula to calculate doubling time simple interest then we will get;
Doubling time simple interest = (1 ÷ 0.09)
Doubling time simple rate = 11.11 years
Because, this is simple interest approach therefore principle amount do not affect the on the interest earned as opposed to compounding effect where principle amount changes each time. Here principle amount remains same throughout the tenure of the investment.
Why there is a need for doubling time simple interest formula?
Although doubling time formula (compounded interest) was already in place to calculate the investment doubling effect however, doubling time with simple interest is intended to calculate the figures where the simple interest is used.
The simple interest formula is commonly used to calculate the ending balance of an investment over a period of specific time;
S = P(1 + rt)
As we need the ending balance twice of the initial investment, so we can rewrite the formula as;
2 = 1 + rt
Now, if we subtract 1 from both sides of above equation, then we will get;
1 = rt
Now, we will divide both sides by the rate r and in return we will get the equation available at the top of the page.