CMA Intermediate · Financial Management and Business Data Analytics · Time Value of Money
Arvind says his money doubled in exactly 9 years under annual compounding. Using the Rule of 72 as an approximation, what annual interest rate did he earn?
The Rule of 72 states that rate multiplied by doubling period is about 72. With a doubling period of 9 years, the implied rate is 72 divided by 9, which equals 8% per annum.
- A6%
- B7%
- C8%Correct
- D9%
Explanation
Rate ≈ 72 ÷ doubling period = 72 ÷ 9 = 8% p.a. Choosing 9% confuses the number of years with the rate.
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.
More Time Value of Money questions
- Which statement best explains why a rupee received today is preferred to a rupee received a year later, in the concept of time value of mone…
- Kavya Textiles expects cash inflows of ₹20,000 at the end of Year 1, ₹30,000 at the end of Year 2 and ₹50,000 at the end of Year 3. Using a …
- Kavita Enterprises invests ₹1,00,000 for 2 years at 10% p.a. Interest is compounded annually. What is the maturity value at the end of 2 yea…
- Kavita invests ₹1,00,000 in a scheme earning 12% p.a. compounded annually. Using the Rule of 72, in about how many years will the investment…
- A project needs an outlay of ₹70,000 now and gives inflows of ₹40,000 at the end of Year 1 and ₹45,000 at the end of Year 2. At a 10% discou…
- For continuous compounding, the Rule of 69 (more precisely 69.3) is used for doubling time. A deposit earns 6.93% p.a. compounded continuous…