If an investment yields 5% annual interest compounded annually, approximately how many years to double using the Rule of 72?

Prepare for the Navy Academic Proficiency Test efficiently with flashcards and multiple choice questions. Each question comes with hints and explanations to enhance understanding. Get ready to succeed in your exam!

Multiple Choice

If an investment yields 5% annual interest compounded annually, approximately how many years to double using the Rule of 72?

Explanation:
Rule of 72 provides a quick estimate for how long an investment will take to double with compound interest. You divide 72 by the annual interest rate (in percent). At 5% per year, 72 ÷ 5 = 14.4 years, so the doubling time is about 14 years. The exact doubling time with the precise formula is ln(2)/ln(1.05) ≈ 14.2 years, which is very close to the estimate. So, about 14 years is the best match.

Rule of 72 provides a quick estimate for how long an investment will take to double with compound interest. You divide 72 by the annual interest rate (in percent). At 5% per year, 72 ÷ 5 = 14.4 years, so the doubling time is about 14 years. The exact doubling time with the precise formula is ln(2)/ln(1.05) ≈ 14.2 years, which is very close to the estimate. So, about 14 years is the best match.

More Multiple Choice Questions
Subscribe

Get the latest from Passetra

You can unsubscribe at any time. Read our privacy policy