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Rule of 72

Rule of 72. Visit the following website: http://www.ruleof72.net/. 2. After looking around the web site answer the following:. What is the “Rule of 72”? Rule of 72 helps you find out how many years you will need to double your money based on compound interest. What would you use it for?

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Rule of 72

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  1. Rule of 72 Visit the following website: http://www.ruleof72.net/

  2. 2. After looking around the web site answer the following: • What is the “Rule of 72”? • Rule of 72 helps you find out how many years you will need to double your money based on compound interest. • What would you use it for? • To determine how much money you will need to save in order to reach a certain financial goal.

  3. 3. Using the menu select “Credit Cards” • How does the Rule of 72 apply to credit? • Use the Rule Of 72 to calculate how much more an 18 percent interest rate costs than a 12 percent interest rate.  If you didn't make any payments and your credit card issuer didn't charge you any extra late or over limit fees, your debt would grow to 8 times its original size at 18 percent interest, or 4 times its original size at 12 percent, in only 12 years.

  4. B) In the example, if you only pay the minimum and no new charges are added, how long will it take you to pay off your credit card? • It is common for minimum payments on credit cards to be about 2% of the account balance each month. If you pay the minimum payment every month, and never make any new charges, it will take you about 30 years to pay off your account at 18 percent, or about 20 years at 12 percent.

  5. C) What is Albert Einstein’s quote (referring to compound interest)? • "It is the greatest mathematical discovery of all time"

  6. 4) Calculate the following, using The Rule of 72. • If you invested $1000 at age 16, at an interest rate of 6%, and you do not touch any of the money, how much money will you have at age 64? (Show your work) Compound Interest using rule of 72 72/ interest rate = 72/6 = 12 years to double 16 years old =1000 28 years old = 2000 40 years old = 4000 52 years old = 8000 64 years old = 16 000

  7. b) How much would you have if you calculated simple interest? • I = Prt = 1000 x 0.06 x 48 = 2880

  8. c) If you invested $5000 at 9%, starting at age 40, how much will you have at age 64? (Show your work) • Compound Interest using Rule of 72 72/interest rate = 72/9 = 8 years 40 years old = 5000 48 years old = 10 000 56 years old = 20 000 64 years old = 40 000 • Simple Interest I = Prt = 5000 x 0.09 x 24 = 10 800

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