Rule of 72

Rule of 72

Rule of 72 is a method for estimating the number of years it will take for an investment to double. The rule calls for dividing 72 by a given interest rate. For example, if you have an interest rate of 10% on a given investment, the equation would be 72/10 = 7.2 years for that investment to double.

In addition to the Rule of 72, there is also the Rule of 70 and the Rule of 69, which are additional calculations for estimating an investment’s doubling time. The value 72 is a convenient choice of numerator, since it has many small divisors: 1, 2, 3, 4, 6, 8, 9, and 12. It provides a good approximation for annual compounding and for compounding at typical rates (from 6% to 10%). The approximations are less accurate at higher interest rates.  Although scientific calculators and spreadsheet programs have functions to find the accurate doubling time, the rules are useful for mental calculations or when only a basic calculator is available

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