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What conditions does the Rule of 72 assume while it estimates a doubling time?
AThe rate rises each year and no money moves in or out
BThe rate stays the same and money is added each year
CThe rate falls each year and money is added each year
DThe rate stays the same and no money moves in or out
Answer & Solution
Correct answer: D. The rate stays the same and no money moves in or out
1. The estimate rests on a single division, so it can hold only one rate.
2. That forces the first assumption: the interest rate stays the same throughout.
3. The estimate also tracks one starting balance growing on its own.
4. That forces the second assumption: no deposits and no withdrawals along the way.
5. Both conditions have to hold together, so only one option can be right.
6. Any option with a changing rate breaks the single division the rule depends on.
7. Any option with money added each year breaks the single starting balance.
_Source: FDIC Money Smart for Adults (September 2018), Module 5: Your Savings, section The Rule of 72_
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