This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: Answer the following questions. Be sure to show all your work not just the answer. Follow this format: cite the formula, and then plug in numbers, then compute to show your final answer. Q1 through 10 are worth 4 points each; Q11a, Q11b, Q12, and Q13 are worth 15 points each. Be sure to solve according to the method that is requested. 1. What is the Rule of 72? The 'Rule of 72' is a simplified way to determine how long an investment will take to double, given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to duplicate itself. 2. Solve using the Rule of 72: rate = 8%, years = 18, pv = $7,000. Solve for fv. 72 ÷ 8% = 9 Years to Double Investment $7,000 * 2 (at 9 years) * 2 (at 18 Years) = $28,000 FV = $28,000 3. Solve, using the Rule of 72 rate = 4%, years = 18, fv=$8,000. Solve for pv. 72 ÷ 4% = 18 Years to Double Investment $8,000 ÷ 2 (at 18 Years) = $4,000 PV = $4,000 4. Solve, using the Rule of 72: rate =6%, pv=$7,000, fv= $56,000. Solve for years. 72 ÷ 6% = 12 Years to Double Investment $56,000 ÷ 2 (at 12 Years) ÷ 2 (at 24 years) ÷ 2 (at 36 years) = $7,000 Years = 36 5. Solve, using the Rule of 72: pv=$10,000; fv=$160,000; years=10. Solve for rate....
View
Full
Document
 Spring '12
 MIKEWOODARD
 Accounting

Click to edit the document details