Rule of 72

Knowledge Center





Description of Rule of 72. Explanation.

 

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


Special Interest Group - Rule of 72


Special Interest Group (6 members)


Forum - Rule of 72  

Discussions about Rule of 72.


Hot 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 (...)
 
 
 
 
  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 (...)
 
 
 
 
  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 appro (...)
 
 
 
 

Best Practices - Rule of 72

Here you find the most valuable discussions from the past.



Expert Tips - Rule of 72

Here you will find advices by experts.



Resources - Rule of 72

Here you find powerpoint presentations, micro-learning videos and further information sources.



Compare with: Time Value of Money  |  Net Present Value  |  Discounted Cash Flow  |  Internal Rate of Return  |  WACC

Special Interest Group Leader

You here? Sign up for free


 
 

Return to Management Hub: Decision-making & Valuation  |  Finance & Investing


More on Management  |  Return to Management Dictionary  | 

 

This ends our Rule of 72 summary and forum.



About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
2019 12manage - The Executive Fast Track. V15.2 - Last updated: 11-12-2019. All names of their owners.