CS Executive · Corporate Accounting and Financial Management · Time Value of Money
Meera wants her deposit to double in exactly 6 years. Using the Rule of 72, what annual compound rate of interest must the deposit earn?
The deposit must earn about 12% per annum. By the Rule of 72, rate multiplied by doubling period equals 72, so dividing 72 by 6 years gives 12%.
- A10%
- B12%Correct
- C14%
- D16%
Explanation
Rate = 72 / doubling period = 72 / 6 = 12%. Check: 72/12 = 6 years. Option 10% would give 7.2 years, and 14% gives about 5.1 years.
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