Purchase Solution

Time Value of Money Using Rule 72

Not what you're looking for?

Ask Custom Question

I have two questions but question 2 has three parts:

1) Using the Rule of 72, how much would $5,000 accumalte to after 27 years if the rate of return is 8% ?

2 a) What woudl the value of a $1000 face value bond with a stated interest rate of 9% return and a 10 year life ?

b) if the intrest rate increased to 10%, what would be the present value of the bond in A.

c) if the interst rate decreased to 6% what would be the present value of the bond in A ?

Purchase this Solution

Solution Summary

The solution explains the calculation of future value and bond prices.

Solution Preview

1. The rule of 72 tells us the time taken for an investment to double. The time is calculated as 72/r, where r is the interest rate. If the interest rate is 8%, the rule says that the time taken to double the investment is 72/8=9 years. $5,000 would become $10,000 in 9 year. for 27 years, there would be three 9 year periods and the amount would be as below
Year 9 Year 18 Year 27
10,000 20,000 40,000
As we have seen 5,000 will become 10,000 in year 9. 10,000 will double to 20,000 in another 9 years ( 20,000 in a total to 18 years) and 20,000 will double to 40,000 in another 9 years. So the total amount would be 40,000 in 27 years

2. The value of a bond depends on the interest ...

Purchase this Solution


Free BrainMass Quizzes
Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

Lean your Process

This quiz will help you understand the basic concepts of Lean.