Double your wealth. Kant Miss Company is promising its investors that it will double their money every 5 years. What annual rate is Kant Miss promising? Is this investment a good deal? If you invest $400 now and Kant Miss is able to deliver on its promise, how long will it take your investment to reach $26,000 ? Using the Rule of 72, what annual rate is Kant Miss promising?

Question

Business

Tamara Salas

4 June, 00:36

Double your wealth. Kant Miss Company is promising its investors that it will double their money every 5 years. What annual rate is Kant Miss promising? Is this investment a good deal? If you invest $400 now and Kant Miss is able to deliver on its promise, how long will it take your investment to reach $26,000 ? Using the Rule of 72, what annual rate is Kant Miss promising?

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Answers (1)

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Jaden Roman · Answer 1

Rule of 72, number of years taken to double the amount = 72/Rate of interest

Hence,

5=72 / Rate

Annual rate promised = 72/5 = 14.4%

It is a good deal if the opportunity cost is less than 14.4%

Let's assume it takes N number of years

400 * (1+0.144) ^N = 26,000

(1.144) ^N = 65

N lies between 31 and 32 years