The Rule of 72 can be used to quickly and fairly accurately estimate how many ye

Question

The Rule of 72 can be used to quickly and fairly accurately estimate how many years it will take for your money to double at a given interest rate. Here is an example for you:

            If I invest my $100 at 8% interest, it will double in 9 years (72 / 8 = 9).

Please use the Rule of 72 to solve these three problems, being sure to show your work:

1. You have $1,000 but want $2,000. There is a fantastic deal at the bank that will allow you to invest your money at 6% interest. How many years will you have to wait to get what you want?

2. If you want your money to double in four years, what is the lowest yearly rate of return you will need to earn in order to get what you want?

3. If you invest $1,000 for 36 years at 4% what is the likely amount of money you will have earned on your investment?

Explanation / Answer

1) no of years required=72/interest rate=72/6=12years

2) when no of years is 4 then interest rate required=72/4=18%

3) with interest rate=4% the amount doubles in 72/4=18 years.

Thus in 36 years it will be 4times which will be 4000

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