Skip to content

CMA Intermediate · Financial Management and Business Data Analytics · Time Value of Money

A fund earns 6% p.a. compounded annually. Which statement correctly compares the Rule of 72 estimate with the exact doubling period, which is ln2 / ln(1.06) ≈ 11.90 years?

The Rule of 72 gives 72 divided by 6, which is 12 years. The exact compounding result is about 11.90 years, so the rule overstates the doubling period only marginally at this rate.

  1. AThe Rule of 72 gives 12 years, slightly above the exact periodCorrect
  2. BThe Rule of 72 gives 12 years, exactly equal to the exact period
  3. CThe Rule of 72 gives 10 years, below the exact period
  4. DThe Rule of 72 gives 14.4 years, well above the exact period

Explanation

Rule of 72 gives 72 ÷ 6 = 12 years. Exact is about 11.90 years, so the estimate is slightly higher, not equal. Dividing 72 by 6 never gives 10 or 14.4 (14.4 would be 72 ÷ 5).

Did you get it right without looking?

One question tells you little. A timed set on Time Value of Money shows your real accuracy, how long you take and where you lose marks.

Practise Time Value of MoneyFree diagnostic mock

More Time Value of Money questions