If an investment yields 5% annual interest compounded annually, approximately how many years to double using the Rule of 72?

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Multiple Choice

If an investment yields 5% annual interest compounded annually, approximately how many years to double using the Rule of 72?

Explanation:
Rule of 72 provides a quick estimate for how long an investment will take to double with compound interest. You divide 72 by the annual interest rate (in percent). At 5% per year, 72 ÷ 5 = 14.4 years, so the doubling time is about 14 years. The exact doubling time with the precise formula is ln(2)/ln(1.05) ≈ 14.2 years, which is very close to the estimate. So, about 14 years is the best match.

Rule of 72 provides a quick estimate for how long an investment will take to double with compound interest. You divide 72 by the annual interest rate (in percent). At 5% per year, 72 ÷ 5 = 14.4 years, so the doubling time is about 14 years. The exact doubling time with the precise formula is ln(2)/ln(1.05) ≈ 14.2 years, which is very close to the estimate. So, about 14 years is the best match.

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