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    Question

    How many years will it take to double your money with

    yearly compounding if the rate of interest is 12%?
    A 2 Correct Answer Incorrect Answer
    B 5 Correct Answer Incorrect Answer
    C 6 Correct Answer Incorrect Answer
    D 4 Correct Answer Incorrect Answer
    E 8 Correct Answer Incorrect Answer

    Solution

    The Rule of 72 is a simplified formula that calculates how long it will take for an investment to double in value (t), based on its rate of return. As per the rule: t ~ 72/rate of interest Here, using the Rule of 72, divide the rate of interest in absolute terms by 72, i.e. 72/12 = 6 years approximately To cross check, if P=100 and r =12% and n=6 A = 100*(1.12)6 = 197.38 which is approximately double the amount of the Principal. 

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