Q1 (Basic). Tom (age 30) invests $1 Million into a fund which guarantees an annual return of 7.2% per year. How much will Tom have at age 50 (twenty years from now)?
- $2 Million
- $4 Million
- $6 Million
Answer (2). Using the rule of 72, an investment of 7.2% per year means Tom's money will double every ten years (72/7.2=10 years). Hence Tom's money would have doubled twice over 20 years. 1 x 2 x 2= 4
Q2 (Basic). Tom, now age 50, decides to continue investing his $4 million into the same fund which guarantees an annual return of 7.2% per year. How much will Tom have at age 70 (twenty years later)?
- $8 Million
- $12 Million
- $16 Million
Answer (3). Using the same rule of 72, an investment of 7.2% per year means Tom's fund will double every ten years. Hence 4 x ......
