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    Question

    Which of the following accounting rules can roughly

    estimate how many years a given sum of money must earn at a given compound annual interest rate in order to double that initial amount.
    A Rule of 85 Correct Answer Incorrect Answer
    B Rule of 78 Correct Answer Incorrect Answer
    C Rule of 144 Correct Answer Incorrect Answer
    D Rule of 72 Correct Answer Incorrect Answer
    E Rule of 216 Correct Answer Incorrect Answer

    Solution

    The Rule of 72 is a simple way to determine how long an investment will take to double given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors obtain a rough estimate of how many years it will take for the initial investment to duplicate itself. However the Rule of 72 is reasonably accurate for low rates of return.

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