Question

If the APY of a $1,000 savings account is 4% and no money is added to or withdrawn from the account, the Rule of 72 says that the balance would reach $2,000 in about ______ years

4, 18, 28, or 36

Answer 1

B. 18 years

Step-by-step explanation:

The Rule of 72 refers to a quick and easy formula which is used to estimate the number of years that are required to double the invested money at a given annual rate of return.

The formula is given as:

Years to double = 72/interest rate

In the scenario presented above, we have an interest rate of 4%. Therefore the number of years required to double the money invested will be calculated thus:

Years to double = 72/4

Years to double = 18 years.

Please note that the 4% is used to calculate without first converting it to 0.04, as doing this will give a result of 1,800 years. To avoid this, we calculate without converting the percentage.