The rule of 72 says that the time in years it takes to double your money is 72 divided by the interest rate in percent. However, it applies to compound interest, but it still gives an approximate number of
100=72/x or x=0.72%.
To calculate accurately, we use
Future amount
=Pe^(rt)
P=current investment
e=Natural log constant=2.7182818284...
r=annual interest rate
t=time in years.
So we have
2P=Pe^(rt)
e^(rt)=2
Take (natural) log on both sides
rt=log(2)
r=log(2)/100=0.006931
You want to make an investment in a continuously compounding account over a period of 100 years. What interest rate is required for your investment to double in that time period? Round the logarithm value and the answer to the nearest hundredth. I got C, is this correct?
0.7 %
6.9 %
2.3 %
23 %
1 answer
1 answer