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Unformatted text preview: ues, the various names attached to it should not create confusion, because you can always make a trial calculation of a value for one factor as a check. 2. Although we commonly deal with years rather than periods, financial tables are frequently presented in terms of periods to provide maximum flexibility. 3. Occasionally, you may want to estimate roughly how long a given sum must earn at a given annual rate to double the amount. The Rule of 72 is used to make this estimate; dividing the annual rate of interest into 72 results in the approximate number of periods it will take to double one’s money at the given rate. For example, to double one’s money at a 10% annual rate of interest will take about 7.2 years (72 10 7.2). Looking at Table A–1, we can see that the future value interest factor for 10% and 7 years is slightly below 2 (1.949); this approximation therefore appears to be reasonably accurate. 138 PART 2 Important Financial Concepts EXAMPLE In the preceding example, Jane Farber placed $800 in her savings account at 6% interest compounded annually and wishes to find out how much will be in the account at the end of 5 years. Table Use The future value interest factor for an...
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