Question

If you deposit rs.50000 today at 12 percent rate of interest in how many years will this amount grow to Rs.160000? Work this problem using the rule of 72

Answer 1

Answer:

The rule of 72 is a method used in finance to quickly estimate the doubling or halving time through compound interest or inflation, respectively.  

For example, using the rule of 72, an investor who invests $1,000 at an interest rate of 4% per year, will double their money in approximately 18 years.

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Answer 2

Given,

Principle=Rs. 50000

Rate of Interest=12%

Amount=Rs. 160000

To Find,

Time period that Rs. 50000 will grow to Rs.160000.

Solution,

[r= 12% FV₁ = 1000 x FVIF (12%, 5 years)

                 =1000 x 1.762

                 = Rs.1762]

According to the Rule of 72,

t = $\frac{72}{r}$

where ,

t = number of periods required to double an investment's value

r = interest rate per period, as a percentage

Rs.160,000/Rs. 5,000 = 32

                                     =$2^{5}$

According to the Rule of 72, at 12 percent interest rate doubling takes place approximately in 72/12-6 years.

So Rs.5000 will grow to Rs. 160,000 in approximately 5 x 6 years = 30 years

The Rule of 72 may be a quick and useful formula that is popularly used to estimate the number of years required to double the invested money at a given annual rate of return.

Alternatively, it can compute the annual rate of compounded return from an investment given what percentage years it will take to double the investment.

Hence , if you deposit Rs.50000 today at 12 percent rate of interest in 30 years will this amount grow to Rs.160000 according to the rule of 72.

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