Question: A useful rule of thumb for the time it takes
A useful rule of thumb for the time it takes an investment to double with discrete compounding is the “Rule of 72.” To use the Rule of 72, you simply divide 72 by the interest rate to determine the number of periods it takes for a value today to double. For example, if the interest rate is 6 percent, the Rule of 72 says it will take 72/6 = 12 years to double. This is approximately equal to the actual answer of 11.90 years. The Rule of 72 can also be applied to determine what interest rate is needed to double money in a specified period. This is a useful approximation for many interest rates and periods. At what rate is the Rule of 72 exact?
Relevant QuestionsBen Bates graduated from college six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to ...Internal Rate of Return Projects A and B have the following cash flows:a. If the cash flows from the projects are identical, which of the two projects would have a higher IRR? Why? b. If C1B = 2C1A, C2B = 2C2A, and C3B = ...Bill plans to open a self-serve grooming center in a storefront. The grooming equipment will cost $ 385,000, to be paid immediately. Bill expects aftertax cash inflows of $ 84,000 annually for seven years, after which he ...Consider the following cash flows of two mutually exclusive projects for AZ-Motorcars. Assume the discount rate for AZ- Motorcars is 10 percent.a. Based on the payback period, which project should be accepted? b. Based on ...Consider two streams of cash flows, A and B. Stream A’s first cash flow is $ 8,900 and is received three years from today. Future cash flows in Stream A grow by 4 percent in perpetuity. Stream B’s first cash flow is – ...
Post your question