Asked by Frank Milosevics on Jul 12, 2024
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Write the rule of 70. Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600. Use the rule of 70 to determine about what interest rate she earned.
Rule Of 70
A quick formula used to estimate the number of years required for an investment or population to double, calculated by dividing 70 by the annual growth rate.
Interest Rate
The cost of borrowing money or the return earned on investments, typically expressed as a percentage of the principal amount.
- Comprehend and utilize the principles of present value and the influence of interest rates on investment choices and the worth of future cash flows.
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VC
Vipin ChandranJul 15, 2024
Final Answer :
$1,600/$50 = 32. The rule of 70 says that if X is the growth rate of a variable, then the variable doubles every 70/X years. This implies the value of the stock doubled five times. Since it doubled 5 times in 100 years, it doubled every 20 years. According to the rule of 70, the value of an asset doubles every 70/X years. So, we need 70/X = 20, which means that X is 3.5 percent.
Learning Objectives
- Comprehend and utilize the principles of present value and the influence of interest rates on investment choices and the worth of future cash flows.