Question

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 ​$450 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? nothing​% ​(Round to the nearest whole​ percentage.)

Answer 1

Solution

Let original investment=100

Future value=100*2=200

Future value=Investment*(1+r)^n

where

n-number of periods=5

r-?

Putting values

200=100*(1+r)^5

Solving we get r=14.87(Rate being offered in percentage)

Now

If future value=26000 and Investment=450

Putting values

26000=450*(1+.01487)^n

Solving we get

n=29.26221

Thus time taken to reach 26000=29.26 years

Using rule of 72

Intrest rate offered=72/5=14.40%

Thus according to rule 72 rate being offered=14%

It is a good investment if the market return in other similar deposit is less than or equal to 14.87%