CH 11 Rule of 72 Student Activity(1)

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Alpena Community College *

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116

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Finance

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Apr 3, 2024

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C HAP T 1 1 Activity: Rule of 72 FOU nd A T i O n S in PERSO n A l F in A n CE CO ll E g E E di T i O n CHAPTER 11: R ET i RE m E n T A nd S Aving S Pl A n S Name Date Objective The purpose of this activity is to understand and apply the Rule of 72, which is used to determine how long it takes for investments to double. The Rule of 72 can also determine what interest rate you need to earn to double your money. Directions A number of different types of investment options are listed in the first column in the chart below. Using the tools of a financial reporting website, like bankrate.com or yahoofinance.com, find a provider for each type of investment listed. List the name of the fund or bank that you found in the second column, and the rate of return in the third column. Finally, use the Rule of 72 (right) to determine how long it will take your money to double using that particular type of investment, and write it in the fourth column. The International Mutual Fund investment has been filled in as an example. Investment nAme oF Fund or BAnk rAte oF return yeArs to douBle Money Market Mutual Fund JP Morgan 12.4% 5.8 years International Mutual Fund Stanley Global Bond Fund 13.9 % 5.2 years Passbook Savings Account Chase .01% 7,200 years Checking Account Bank of America .02% 3,600 years 3-Year Certificate of Deposit Pentagon Federal Credit Union 2.1% 34.3 years 5-Year Certificate of Deposit Pentagon Federal Credit Union 2.5% 28.8 years Growth Stock Mutual Fund APGAX 12% 6 years Rule of 72 72 / interest rate = years to double investment 72 / the years it takes to double

1 1 C HAP T E R Activity: Rule of 72 FOU nd A T i O n S in PERSO n A l F in A n CE CO ll E g E E di T i O n CHAPTER 11: R ET i RE m E n T A nd S Aving S Pl A n S Use the Rule of 72 to answer the following questions. 1 What annual interest rate will cause your money to double in four years? Your interest rate must be 18 percent. 2 Tanner has invested $500 for college. What rate of return must Tanner earn for his investment to double in six years? His rate of return must be 12 percent. 3 Jerrod owes $2,000 on a credit card that charges him an annual percentage rate of 18%. If Jerrod stopped making payments, how long would it be before the balance on his credit card reached $4,000? It will take 4 years for his balance to reach $4,000. 4 Because Jerrod missed a payment, the credit card company automatically raised the interest rate to 24%. How many years would it be until his balance doubles, assuming he continues to make no payments? It will take 3 years until his balance doubles. 5 Emily got a new job that guarantees her a 6% raise every year. If she started out making $25,000, how long will it be before she doubles her current salary? It will be 12 years before she doubles her salary. 6 If you invested $250 at 16% interest, how much will you have after 18 years? You will have $970 after 18 years. 7 Ron and Amie invested $5,000 in an Education Savings Account for their daughter when she was born. They were unable to add anything else to the account. What was the rate of return if they had $10,000 in the account after 12 years? The rate of return was 6%. 8 Kari would like to save $10,000 for a down payment on a house. Illustrate the difference in years it will take her to double her current $5,000 savings based on a 6%, 12% and 18% interest rate. A 6% interest rate would take her 12 years, 12% will take her 6 years, and 18% would take her 4 years.

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