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 ​$300 now and Kant Miss is able to deliver on its​ promise, how long will it take your investment to reach ​$34,000​?

Part 1) Using the Rule of​ 72, what annual rate is Kant Miss​ promising? (Round to the nearest whole​ percentage.)

Part 2) Using the time value of money​ equation, what annual rate is Kant Miss​ promising? ​(Round to two decimal​ places.)

Part 3) Is this investment a good​ deal? ​(Select the best​ response.)

A.Yes. This investment is a good deal if you are earning lower than 14.87​% rate of return annually on your current investment.

B.No. This investment is not a good deal if you are earning a rate of return lower than 14.87​% annually on your current investment.

C.Yes. This investment is a good deal if you are earning higher than 14.87​% rate of return annually on your current investment.

D. No. It is hard to tell whether this investment is a good deal or not.

Answer 1

1) Using rule of 72:

i = [72/5] = 14.4% or 14% (rounded)

2) Investment = $300

Time taken to double is 5 years

Interest rate according to time value will be = [600/300]^(1/5) - 1 = 14.869% or 14.87% (rounded)

Time taken to reach 34000 from 300 = 34.121 years

Using goal-seek function in excel :

3) Yes. This investment is a good deal if you are earning lower than 14.87​% rate of return annually on your current investment.

As our rate of return is 14.87% clalculated. So if our current investment earns lowet than it then only we should enter into it.