Rule of 72Knowledge Center 
10 items • 20.863 visits
What is the Rule of 72? Meaning.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
Compare with: Time Value of Money  Net Present Value  Discounted Cash Flow  Internal Rate of Return  WACC 

Return to Management Hub: Decisionmaking & 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
© 2021 12manage  The Executive Fast Track. V15.8  Last updated: 3172021. All names ™ of their owners.