financeOne of the best ways to make money is to let money make more money. An amount paid for the use of money for a period of time is called **interest**. Money deposited in certain kinds of bank accounts increases when the bank pays interest on the deposit. Bank deposits are further increased with compound **interest**. **Compound** interest is interest paid on an original amount deposited in a bank plus any interest that has been paid. In other words, the original money deposited earns interest, and then the interest earns additional interest.
The "Rule of 72" is a simple way to see the power of compound interest. This formula calculates how long it will take an original investment to double its value at a given interest rate when left alone in an interest-bearing account.
When 72 is divided by the interest rate, the answer is the number of years it will take to double the money. This formula assumes that no additional deposits are made. The Rule of 72 illustrates theadvantage of saving early. For example, if $1,000 is deposited in a bank account that earns 4% interest, it will take 18 years to double to$2,000. The calculation is 72 / 4 = 18 years.
Rachel dreams of starting her own business. She will need a $10,000 investment to start; however, she has saved only$5,000. The bank pays a 6% interest rate that is compounded annually. How many years will it take for Rachel's money to double? politics of the united states 1st Edition•ISBN: 9780078953125 (1 more)Carl A. Woloszyk, Grady Kimbrell, Lois Schneider Farese1,600 solutions
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