Write the rule of 70 Suppose that your greatgreatgrandmother

Write the rule of 70. Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600. Use the rule of 70 to determine about what interest rate she earned.

Solution

$1,600/$50 = 32.

The rule of 70 says that if X is the growth rate of a variable, then the variable doubles every 70/ Xyears. This implies the value of the stock doubled five times. Since it doubled 5 times in 100 years, it doubled every 20years. According to the rule of 70, the value of an asset doubles every 70 / Xyears. So, we need 70 / X= 20, which means that X is 3.5 percent.