Multiple choice

If money is invested at r percent interest, compounded annually, the amount of the investment will double in approximately 70/r years. If Pat's parents invested $5000 in a long term bond that pays 8 percent interest, compounded annually, what will be the approximate total amount of the investment 18 years later, when Pat is ready for college?

  1. $ $ 20,000$
  2. $ $ 15,000$
  3. $ $ 12,000$
  4. $ $ 10,000$
  5. $ $ 9,000$
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A Correct answer
Explanation

The rule of 70 states that money doubles in 70/8 = 8.75 years. In 18 years, the money doubles approximately twice (18 / 8.75 is slightly more than 2). Doubling \$5000 twice results in \$5000 * 2 * 2 = $20,000.

AI explanation

Using the given rule of 70, an investment at an 8% interest rate will double in approximately 70 divided by 8 years, which is 8.75 years. Over an 18-year period, the investment will double approximately twice. The initial amount of \$5000 doubles to \$10000 and then doubles again to $20000.

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