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.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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To calculate how long it will take your money to double, you can use the rule of 72. Using this rule, divide your expected annual rate of return into 72.

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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.

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RULE OF 72 Rule of 72 refers to the time value of money.

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To introduce you to the strange but glorious math in compound interest, we can use the rule of 72: If you divide your rate of return or interest rate into 72, then you'll know approximately how many years it will take to double your money.

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A: I've found teaching savers the 'Rule of 72' and showing them historical results change their mind-set.

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Let's use the Rule of 72, an accountant's rule-of-thumb, to find out how often things double at a given percentage.