In your first year out of college you hope to earn $50,000 per year. How many years will you have to work until you earn $100,000 if your income increases at a rate of 10% per year? Use the Rule of 72 to determine your answer.
A) You would need to work for just over 5 years to reach an income level of $100,000 per year.
B) You would need to work for just over 6 years to reach an income level of $100,000 per year.
C) You would need to work for just over 7 years to reach an income level of $100,000 per year.
D) You would need to work for just over 8 years to reach an income level of $100,000 per year.

Question

Quizplus · Accepted Answer

Using the Rule of 72, divide 72 by the growth rate of 10% to find the approximate number of years it takes for the income to double.
72 ÷ 10 = 7.2
Therefore, the income will double after approximately 7.2 years.
Starting with an income of $50,000, we need to find the year when the income reaches $100,000.
Year 1: $50,000
Year 2: $55,000 (10% increase)
Year 3: $60,500 (10% increase)
Year 4: $66,550 (10% increase)
Year 5: $73,205 (10% increase)
Year 6: $80,526.50 (10% increase)
Year 7: $88,579.15 (10% increase)
So, the income will reach $100,000 in just over 7 years. Hence, the correct choice is C.

In Your First Year Out of College You Hope to Earn