An investor needs to double his money in seven years to reach his financial goals. What is the lowest rate of return he must earn to do this successfully? (Hint: Rule of 72)
The Rule of 72 states that to estimate the number of years it takes to double an investment at a given annual rate of return, we divide 72 by the rate of return. In this case, the investor needs to double his money in seven years, so we can use the Rule of 72 to find the lowest rate of return he must earn.
72 / rate of return = 7
To solve for the rate of return, we rearrange the equation:
rate of return = 72 / 7
rate of return ≈ 10.286%
Therefore, the investor must earn at least a 10.286% rate of return to double his money in seven years.
To find the lowest rate of return the investor must earn, we can use the Rule of 72. The Rule of 72 states that if you divide 72 by the interest rate, it will give you an estimate of how many years it will take to double your money.
In this case, the investor needs to double his money in 7 years. Using the Rule of 72, we can set up the following equation:
72 / Interest rate = number of years
Plugging in the given number of years:
72 / Interest rate = 7
To solve for the interest rate, we can cross-multiply:
72 = 7 * Interest rate
Divide both sides by 7:
Interest rate = 72 / 7
Using a calculator, we can calculate the interest rate:
Interest rate ≈ 10.2857
Therefore, the investor must earn a minimum rate of return of approximately 10.29% to double his money in 7 years.