Strong companies increase in value. If that increase is consistent, and if you hold the security for long enough, you may be able to see your investment double in price. The real question is how long does it take? Using a derivation of the compound interest formula, you can calculate the answer to that question.
1. Divide the current stock price by the price one year ago. This gives you the growth factor. You can ask your stock broker for this information or look it up on most investment sites. For example, if a stock is trading at $50, which is up from its $40 price one year ago, then the growth factor is 1.25.
2. Take the natural log of this growth factor. On a business or scientific calculator, enter the growth factor and press "ln." In the example, this gives you 0.22314.
3. Divide this number into 0.693147, which represents the natural log of 2. This gives you the number of years until the stock doubles at its current growth rate. In the example, your stock is expected to double in 3.1063 years.
- A shortcut to this calculation is to divide 72 by the rate of return. This calculation is easier, but not as accurate. In the example, the growth factor of 1.25 represents a 25 percent rate of return. Dividing 72 by 25 gives you 2.88 years.
Items you will need
- Business or scientific calculator.