Question

Corbin’s parents want to save $50,000 for his college education and already have $25,000. About how long would it take them to double their current savings if they can earn an 8% interest rate?

Answer 1

Answer:

about 9 years

Explanation:

To solve this problem we will use what is known as 'The Rule Of 72.' This particular rule is what the Mathematical World considers a 'short cut.' That's because it is an efficient way to calculate how long it takes money to double, base solely on the interest rate. However, it is important to remember that this rule only provides an estimate, and not an exact amount of years.

The Rule Of 72 is as follows:

$\displaystyle\frac{72}{[interest][rate]}$   =  time it takes for investment to double

*please note that I separated the word 'interest' and 'rate' using brackets. however, please ignore them. as I only used the brackets to separate the words since the equation option does not allow space between letters.

Now that you understand the Rule Of 72, let's use it to solve the given problem.

Corbin’s parents want to save $50,000 for his college education and already have $25,000. About how long would it take them to double their current savings if they can earn an 8% interest rate?

Although the first sentence in the problem gives us information of the parents goal and their current amount saved, this information will not be useful to us. As the Rule Of 72 goes, we only need to know the interest rate to solve.

Looking at the second sentence it states the interest rate is: 8%

Now substitute the interest rate in the Rule Of 72.

$\displaystyle\frac{72}{[interest][rate]}$ ⟶ $\displaystyle\frac{72}{8}$

The last step is to simplify (or divide).

$\displaystyle\frac{72}{8} = 9$

So, according the Rule Of 72, it will only take about 9 years to double their current savings.