Question

The rule of 70 applies in any growth-rate application. Let’s say you have $2000.00 in savings and you have three alternatives for investing these funds.
A savings account earning 1% interest per year.A U.S. Treasury bond mutual fund earning 3% interest per year.A stock market mutual fund earning 8% interest per year.

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.

Answer 1

Answer:

(a)70 years

(b)23.33 years

(c)8.75 years

Explanation:

According to the Rule of 70, for a given interest rate x, funds double in $\frac{70}{x}$ years.

(a)For a savings account earning 1% interest per year,

The number of years it will take the fund to double= $\frac{70}{1}$ =70 years

(b)For a U.S. Treasury bond mutual fund earning 3% interest per year.

The number of years it will take the fund to double= $\frac{70}{3}$ =23.33 years

(c)For a stock market mutual fund earning 8% interest per year.

The number of years it will take the fund to double= $\frac{70}{8}$ =8.75 years