Question

The rule of 70 applies in any growth-rate application. Let’s say you have $3500.00 in savings and you have three alternatives for investing these funds. How many years would it take to double your savings in each of the following three accounts? In all cases, give your answers to two decimals.a. a savings account earning 0.50% interest b. a U.S. Treasury bond earning 3.50% interest c. a stock market mutual fund earning 8.00% interest years years years

Answer 1

(a)140 years

(b)20 years

(c)8.75 years

Step-by-step explanation:

The Rule of 70 is used in accounting to estimate the duration(number of years) it will take for the initial investment (P) to double in value given a particular interest rate (r) and an annual compounding period.

The Formula for the Rule of 70 is:

`\text{Number of Years to Double}=\frac{70}{\text{Annual Rate of Return}}`

(a)Savings account earning 0.50% interest

`\text{Number of Years to Double}=(70)/(0.5)=140 years`

(b)A U.S. Treasury bond earning 3.50% interest

`\text{Number of Years to Double}=(70)/(3.5)=20 years`

(c)A stock market mutual fund earning 8.00% interest

`\text{Number of Years to Double}=(70)/(8)=8.75 years`