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The Rule of 72 This is a continuation of Exercise 14. Financial advisors sometimes use a rule of thumb known as Rule of 72 to get a rough estimate of the time it takes for an investment to double in value. For an investment that is compounded yearly at an interest rate of
For the remainder of this exercise, we will consider an investment that is compounded yearly at an interest rate of
a. According to the Rule 72, how long will it take the investment to double in value?
Parts b and c of this exercise will check to see how accurate this estimate is for this particular case.
b. Using the answer you got from part a of this exercise, calculate the future value interest factor (as defined in Exercise 14). Is it exactly the same as your answer to the part a of Exercise 14?
c. If your initial investment was
Future Value Business and finance texts refer to the value of an investment at a future time as its future value. If an investment of P dollars is compounded yearly at an interest rate of
In this formula,
Financial officers normally calculate this (or look it up in a table)
a. What future value interest factor will make an investment double?
b. Say you have an investment that is compounded yearly at a rate of
Find the future value interest factor for a 7-year investment.
c. Use the results from part b to calculate the 7-year future value if your initial investment is
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