ECONOMICS
COMPOUND INTEREST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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$15, 500.50
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$19, 260.38
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$19, 260.40
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$21, 500.25
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Detailed explanation-1: -According to the Rule of 72, it would take about 14.4 years to double your money at 5% per year.
Detailed explanation-2: -Calculating the limit of this formula as n approaches infinity (per the definition of continuous compounding) results in the formula for continuously compounded interest: FV = PV x e (i x t), where e is the mathematical constant approximated as 2.7183.
Detailed explanation-3: -A 10% interest rate will double your investment in about 7 years (72 ∕ 10 = 7.2); an amount invested at a 12% interest rate will double in about 6 years (72 ∕ 12 = 6). Using the Rule of 72, you can easily determine how long it will take to double your money.
Detailed explanation-4: -Thus, it will take 14.21 years for the money to double.