Question

The Rule of 70 applies in any growth rate application. Let’s say you have $1000 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 long would it take to double your savings in each of these 3 accounts?

Answer 1

Answer:

a. 7,000 years

b. 2,333 years

c. 875 years

Explanation:

Based on rule of 70, we can have the following formula to do the calculation:

Number of years to double = 70 ÷ Interest rate per year .................... (1)

We can now calculate as follows:

a. A savings account earning 1% interest per year.

Number of years to double = 70 ÷ 1% = 7,000 years

b. A U.S. Treasury bond mutual fund earning 3% interest per year.

Number of years to double = 70 ÷ 3% = 2,333 years

c. A stock market mutual fund earning 8% interest per year.

Number of years to double = 70 ÷ 8% = 875 years

Note:

It can be observed that the higher the interest rate, the lower the number of years it will take the investment to double.