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Rule of 72 Mr. Roeshink – Business Operations
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The Rules Explained Choice of rule 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.divisors
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RateActual YearsRule of 72 0.25%277.605288.000 0.5%138.976144.000 1%69.66172.000 2%35.00336.000 3%23.45024.000 4%17.67318.000 5%14.20714.400 6%11.89612.000 7%10.24510.286 8%9.0069.000 9%8.0438.000 10%7.2737.200 11%6.6426.545 12%6.1166.000 15%4.9594.800
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Years to Double Example Suppose the annual interest rate is 6%. How long will it take to double your money? 72 ÷ annual interest rate = years to double 72 ÷ 6 = 12 years to double *It will take 12 years to double your money
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Annual Interest Rate Example If you would like to double your money in 12 years, what rate of interest will you need? The formula can be restated as: 72 ÷ years to double = annual interest rate 72 ÷ 12 = 6 *You will need 6% percent interest to double your money in 12 years
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In Summary
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