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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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