Rule of 72

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Description of Rule of 72. Explanation.

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Definition Rule of 72. Description.


The Rule of 72 is a formula that is used in investing to approximate the number of years it will take to double money at a given (compound) interest rate. The calculation works by dividing 72 by the interest percentage you will receive, giving the number of years.


Example: an investment gives an interest of 9%. The estimated time in years (t) it will take to double your investment is 72 / 9 = 8 years.

The number of 69.3 or 70 is actually better, but the number 72 has as advantage it is easily divisible by many numbers: 2, 3, 4, 6, 8, 9, and 12 and works OK for most purposes.


The exact number can be derived from the Formula Future Value = Present Value x ( 1 + Interest Rate )t

Suppose the money has doubled, this means that the Future Value then equals 2 Present Value. We can now substititute this in the formula and then cancel the factor Present Value.


This results in 2 = (1 + Interest Rate)t    or:    t ≈ 0,693147 / Interest Rate


Rule of 72 Forum
  Variants of the Rule of 72: Rule of 69 and Others
An important important note to make with regard to the usage of the Rule for 72 is that the rule is said to be fairly accurate within an interest range from 6% to 10%. Any interest rate outside this bracket needs adjustments to create an accurate ru...
     
 
  Reverse Rule of 72
You can also use the rule of 72 in reverse for a quick calculation of ROI by dividing the number of years to reach break-even in a Capex investment into 72...3 years gives your @24% and so on...
Quite useful in sales and making quick decisions w...
     
 
  Rule of 72 Cases and Examples
Hi, do you know of a remarkable case or an interesting example of the use of the rule of 72 to approximate the number of years it will take to double money at a given (compound) interest rate?
Please share it by entering a reaction.
Thanks fo...
     
 

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