Final answer:
The Rule of 72 estimates the time needed to double an investment at a fixed interest rate by dividing 72 by the annual rate; it is not directly used for calculating tripling or quadrupling investment periods.
Step-by-step explanation:
The Rule of 72 is a simple mathematical formula used to estimate the number of years required to double the invested money at 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 grow to twice its size. For instance, with a 7% annual return, it would take approximately 72/7, or roughly 10.29 years, for an investment of $5,000 to double.
However, the Rule of 72 does not directly calculate the time needed for an investment to triple or quadruple. These are separate calculations requiring more complex compound interest formulas. To more accurately determine the time for an investment to triple or quadruple, a financial calculator or software capable of handling compound interest calculations would be necessary.For the investment to triple, the growth rate would need to be higher. Let's assume a growth rate of x%. Using the rule of 72, we find that 72/x = 10. Solving for x, we get x = 7.2. So, the investment would need to earn approximately 7.2% annually for it to triple in about 10 years. Therefore, option 2 is incorrect.