Final answer:
The Rule of 72 estimates the time to double an investment at a given annual interest rate, not to double the interest rate itself. By dividing 72 by the interest rate, you obtain the approximate number of years for doubling the investment. The answer to the student's question is b) False.
Step-by-step explanation:
The student's question about whether the Rule of 72 is a shortcut to estimate the time needed to double an interest rate is a misunderstanding of the rule’s purpose. The correct statement is that the Rule of 72 is used to estimate the time needed to double an investment, not the interest rate itself. Therefore, the correct answer is b) False. The rule is a simplified formula where you divide the number 72 by the annual interest rate to estimate the number of years it will take for the initial investment to double. For example, at an annual interest rate of 6%, the calculation would be 72 divided by 6, which results in 12 years for the investment to double. This formula is particularly useful for interest rates that are below 10%, as the estimate becomes less accurate for higher rates.