Rule of 72 as a short cut method is explained by the formula:
Correct answer: D. 72 divided by the annual interest rate
- A. None of these
- B. Annual interest rate dividend by 72
- C. 72 divided by (annual interest rate multiplied by discount factor)
- D. 72 divided by the annual interest rate
Explanation
The Rule of 72 estimates the number of years needed to double an investment by dividing 72 by the annual interest rate expressed as a percentage. For example, at 8%, doubling takes about 72 ÷ 8 = 9 years.
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