Answer:
We notice that the more the fees increase for a constant rate of return, the number of years it takes to double on the investment also increases. For example;
a). 15.6 years
b). 20 years
c). 28 years
Explanation:
The rule of 70 is a formula that can be used to estimate the number of years it will take an investment to double up.The formula is expressed as;
Number of years to double=70/Annual rate of return
a). Given;
Annual rate of return per unit of investment=5%
Annual fees per unit of investment=0.5%
Net rate of return=Annual rate of return-Annual fees=(5%-0.5%)=4.5%
Replacing;
Number of years to double=70/Net rate of return
=70/4.5=15.555 to nearest tenth=15.6 years
b). Given;
Annual rate of return per unit of investment=5%
Annual fees per unit of investment=1.5%
Net rate of return=Annual rate of return-Annual fees=(5%-1.5%)=3.5%
Replacing;
Number of years to double=70/Net rate of return
=70/3.5=20.0 to nearest tenth=20 years
c). Given
Annual rate of return per unit of investment=5%
Annual fees per unit of investment=2.5%
Net rate of return=Annual rate of return-Annual fees=(5%-2.5%)=2.5%
Replacing;
Number of years to double=70/Net rate of return
=70/2.5=28.0 to nearest tenth=28 years
We notice that the more the fees increase for a constant rate of return, the number of years it takes to double on the investment also increases
