Rule of 72


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Rule of 72

A formula used to determine the amount of time it will take for invested money to double at a given compound interest rate, which is 72 divided by the interest rate. The logic is as follows. The time for an amount A to double is given by 2A=A(1+i)^t where ^ represents exponent and i is the interest rate, e.g. .05 is 5%. The A term cancels from both sides of the question. Solve for t by taking the natural log of both sides of the equation. Hence, t= [ln(2) over {ln(1+i)}], which is approximately equal to 0.72 over i. Hence the rule of 72.

Rule of 72

A rule of thumb estimating how long it will take for an investment to double. One calculates this by dividing 72 by the rate of return. The rule of 72 is not exact, but it provides a quick look at the effects of compounding on an investment.

rule of 72

The mathematical rule used in approximating the number of years it will take a given investment to double in value. The number of years to double an investment is calculated by dividing 72 by the annual rate of return. Thus, an investment expected to earn 10% annually will double the investor's funds in 72/10 , or 7.2 years. Dividing 72 by the number of years in which the investor wishes to double his or her funds will yield the necessary rate of return.
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The Rule of 72 says that to find the number of years required to double your money at a given interest rate, you just divide the interest rate into 72.
In addition, the website offers practical financial planning tips on goal setting, cash management and budgeting, financial health, and the rule of 72 - which provides an almost exact indication of how investments may grow depending on the annual profit rate or return on investment.
RULE OF 72 Rule of 72 refers to the time value of money.
Let's use the Rule of 72, an accountant's rule-of-thumb, to find out how often things double at a given percentage.
For someone saving for retirement, an inheritance will allow the power of compound interest to work using the Rule of 72.
The new rule of 72 suggests that 72 divided by the inflation rate indicates the number of years before the value of your client's money is diminished by 50 percent.
For instance, if you were to invest $1,000 with compounding interest at a rate of nine per cent per annum, the rule of 72 gives 72/9 = 8 years required for the investment to be worth $2,000.
1% return over 35 years because of consumers' knowledge of the rule of 72, and therefore would have recognized the agent's error and not been tricked, like Paul was.
The rule of 72 offers a handy method of determining the approximate number of years it will take an asset to double in value (the known rate of interest is divided into 72).
Questions on opportunity cost (#3), the rule of 72 (#24), liquidity risk (#26), credit bureau (#34), and unauthorized use of credit cards (#38) were the most difficult for high school and university students in all three countries except for the U.
One thing you might find helpful is the Rule of 72.