Question

3. The "rule of 72" says to divide 72 by the annual interest rate to estimate the number of years needed for an initial investment earning that rate to double. How long would it take for $5 earning 6% a year to grow to $20? a. 12 years b. 24 years c. 36 years d. 48 years 4. If the tractor costs $124.000 (also the loan amount), and the 8 percent loan will be paid back in 5 equal annual payments, what will the annual payment be? a. $29,437.15 b. $24,800.00 c. $20,666.67 d. $31,056.60 5. A farmer purchases 600 pound feeder steers for 80 cents per pound and plans to sell the steers at 750 pounds. The farmer estimates the total cost of gain to be 40 cents per pound of gain. The nearest breakeven price when the steers are sold at 750 pounds is: a. 81.15 cents/pound b. 75.00 cents/pound c. 72.00 cents/pound d. 70.00 cents/pound e. None of the above ARE 204 Homework #5 6. The total amount borrowed on a loan may be increased without increasing the annual payments on the loan by: a. Raising the interest rate. b. Increasing the number of years of repayment. c. Reducing production costs. d. Buying more land.

Answer 1

Given 5 $ Initial Investment earning Final amount 6% 20 $ Solution As per rule of 72, it would take 72/6=12 years for $5 to double to $10, and another 72/6=12 years for $10 to double to $20. Hence, total year taken for growing money from $5 to $20 is 12+12=24 years. Hence, Option b 24 years is correct. *Note: We are allowed to answer only one question.