Approximately how many years are needed to double a $100 investment when interest rates are 7 percent per year? | Homework.Study.com (2024)

Question:

Approximately how many years are needed to double a $100 investment when interest rates are 7 percent per year?

Rule of 72

A common investment question is how long it will take for an investor to double their money. The Rule of 72 is a fast and easy way to determine approximately how many years that will take at a certain rate of return.

Time value of money

• The time value of money (TVM) concept is widely used in finance in evaluating the different investments.
• TVM states that a dollar today is worth more than a dollar in the future. This means if a dollar is invested today, its value will grow over time as long as the investment pays interest.
• The key variables considered by TVM are the present value and future value whose relationship is determined by the variables of interest rate and time period of investment.
• To determine the time needed for an investment to double one can substitute the other variables into the approriate formulas and solve or use the shortcut approaches such as rule 72, rule 69 and rule 69.3.

Answer and Explanation:

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