Modern Principles of Economics
Modern Principles of Economics
4th Edition
ISBN: 9781319098728
Author: Tyler Cowen, Alex Tabarrok
Publisher: Worth Publishers
Question
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Chapter 23, Problem 1FT

Subpart (a):

To determine

Rule of 70.

Subpart (a):

Expert Solution
Check Mark

Explanation of Solution

By the rule of 70, if one invests $3000 in a bank account and earns 2% real annual return on average, then it would take 35 years (702) until it is worth $6,000. This $6,000 would take another 35 years (702) to double up to $12,000 by the rule of 70. Therefore, $3,000 would take 70 years (35+35)  until it was worth $12,000.

Economics Concept Introduction

Concept introduction:

Rule of 70: By the rule of 70, if the rate of return which is the annual percentage increase in value including dividends is x% of an investment, then the doubling time is 70x   years.

Subpart (b):

To determine

Rule of 70.

Subpart (b):

Expert Solution
Check Mark

Explanation of Solution

By the rule of 70, if one invests $3000 in mutual and earns 7% real annual return on average, then it would take 10 years (707) until it is worth $6,000. This $6000 would take another 10 years (707) to double up to $12,000 by the rule of 70. Therefore, $3000 would take 20 years (10+10)  until it was worth $12,000.

Economics Concept Introduction

Concept introduction:

Rule of 70: By the rule of 70, if the rate of return which is the annual percentage increase in value including dividends is x% of an investment, then the doubling time is 70x   years.

Subpart (c):

To determine

Rule of 70.

Subpart (c):

Expert Solution
Check Mark

Explanation of Solution

By the rule of 70, if one invests $3000 together in bank and mutual fund and earns 5% real annual return on average, then it would take 14 years (705) until it is worth $6,000. This $6000 would take another 14 years (705) to double up to $12,000 by the rule of 70 Therefore, $3000 would take 28 years (14+14)  until it was worth $12,000.

Economics Concept Introduction

Concept introduction:

Rule of 70: By the rule of 70, if the rate of return which is the annual percentage increase in value including dividends is x% of an investment, then the doubling time is 70x   years.

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