Question

Using the "rule of 72," if you invested $2,500 at eight percent interest, how many years would it take before your investment was worth $5,000?

Answer 1

Using the Rule of 72, dividing 72 by the eight percent interest rate, it would take approximately 9 years for a $2,500 investment to double to $5,000.

Step-by-step explanation:

Understanding the Rule of 72

Using the Rule of 72, we can estimate the number of years it will take for an investment to double at a given interest rate. The formula is simple: you divide 72 by the annual interest rate. In this case, the student wishes to know how many years it will take for a $2,500 investment at eight percent interest to grow to $5,000.

To calculate this, we use the Rule of 72 and divide 72 by the annual interest rate of 8%:

72 ÷ 8 = 9 years

Therefore, it would take approximately 9 years for the investment to double from $2,500 to $5,000. This is a practical application of compound interest and illustrates why starting to save early in life can significantly impact the growth of investments over time.