CMA Intermediate · Financial Management and Business Data Analytics · Time Value of Money
For continuous compounding, the Rule of 69 (more precisely 69.3) is used for doubling time. A deposit earns 6.93% p.a. compounded continuously. What is its doubling time?
With continuous compounding, doubling time equals ln2 divided by the rate, approximated as 69.3 divided by the rate in percent. At 6.93%, this gives 10 years.
- A5 years
- B10 yearsCorrect
- C12 years
- D15 years
Explanation
Doubling time = 69.3 ÷ 6.93 = 10 years, since ln2 ≈ 0.693 and e^(0.0693×10) = e^0.693 = 2. Using 72 would give about 10.4 years, not a clean option.
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