Question

The rule of 72 tells you approximately how long it takes for money invested at a given rate of compound interest to double in value.

A. True
B. False

Answer 1

It holds (A) true that by dividing 72 by the annual interest rate, you get the approximate years for the investment to double, particularly accurate for interest rates below 10%.

Step-by-step explanation:

The statement is True. The Rule of 72 is a simple way to estimate the number of years required to double the value of an investment at a fixed annual rate of compound interest.

By dividing 72 by the annual rate of interest, you get an approximation of how many years it will take for the initial investment to grow to twice its size.

For example, at an annual interest rate of 5%, it would take roughly 72/5, which is about 14.4 years, for the investment to double. This rule is a quick, mental calculation that can be used to understand the impact of compound growth rates on investments.

However, it's important to recognize that the Rule of 72 is an approximation and is most accurate for interest rates that are below 10%. For higher rates, the rule may lose accuracy but can still provide a handy estimation.