Consider an investor who has $750,000 to invest and is looking to buy an investment property in a large city in Australia. The investor has been told by you as an investment analyst that property in this city is a good investment because property prices there have approximately doubled every 10 years. The investor is also considering investing in a term deposit at a major bank in Australia with an interest rate offered of 1% per annum compounded annually. 

The investor wants to determine whether to invest in a term deposit or to buy an investment property and has asked you as an investment analyst to answer the following :

Write down the Rule of 69 for doubling time D years in terms of the annual interest rate I % with annual compounding. Is the Rule of 69 more accurate than the Rule of 70 and the Rule of 72? Explain your answer. and references.

Explain briefly why term deposit interest rates are currently at record lows in Australia.

The investor asked you as an investment analyst about calculating the time taken for property prices to quadruple. Using the Rule of 72, write down a simple mathematical formula for quadrupling time Q years in terms of the annual rate of return I % with annual compounding. Your formula should be valid for low rates of return.

(Using your answer to Part-3), calculate the approximate quadrupling time for property prices if the annual rate of return is given as approximately 7% per annum with annual compounding. Round your answer down to the nearest year.

Answer rating: 100% (QA)

The Rule of 69 for doubling time D years in terms of the annual interest rate I with annual compound... View the full answer