If you desire your savings to double in 6 years, what annual rate of return (compounded annually) would you need to earn?

• A. Exactly 10.0\%
• B. Approximately 8.3\%
• C. Approximately 6.0\%
• D. Approximately 12.2\%

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of the Rule of 72, which is a simplified formula to estimate the number of years required to double an investment at a fixed annual rate of return. The formula is: \( \text{Rate of Return} = \frac{72}{\text{Time to Double}} \).
2. Step 2: Identify the given information in the problem. The time to double the savings is 6 years, and the goal is to find the annual rate of return.
3. Step 3: Apply the Rule of 72 formula. Substitute the time to double (6 years) into the formula: \( \text{Rate of Return} = \frac{72}{6} \).
4. Step 4: Simplify the equation to calculate the approximate rate of return. This will give you the annual rate of return needed to double the savings in 6 years.
5. Step 5: Compare the calculated rate of return with the provided options (10.0\%, 8.3\%, 6.0\%, and 12.2\%) to determine the correct answer.