Case study - Question 1 and 2
Question 1: The rule of 72 says how may years it takes for the money to double itself
Investment A of 12,500 increased four times to 50,000 in 6 years. So, it doubled in 3 years. So, the rate of return on investment A as per rule 72 is 72/3 = 24% (Option C)
Question 2:
The actual return of Investment A = (50000/12500)^(1/6) -1 = 26%. So rule of 72 underestimates the actual return on investment A by 2% whereas it accurately estimates investment B
Answer : The rule of 72 does a better job of estimating the annualized return of Investment B than Investment A; The rule of 72 underestimates the actual return of investment A by 2% (Option E)
Note: We have answered one full question with both the sub-parts. Please note that only one full question(One multiple choice question) can be answered at a time. Please post the other questions separately for experts to answer
No need for explanation You are trying to compare two six year investment ideas; both ideas...
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