The Rule of 72 is a simple way to determine how long an investment will take
to double given a fixed annual rate of interest.
By dividing 72 by the annual rate of return, investors obtain a rough estimate
of how many years it will take for the initial investment to duplicate itself.
For example, if you want to know how long it will take to double your
money at eight percent interest, divide 8 into 72 and get 9 years.
This rule can potentially help you get a sense of how long an investment would take to double in value based on the interest rate you're being offered. It can also help you figure out the interest rate you'll want if you're looking to double your investment in a certain amount of time. Let's say you want your investment doubled within five years. The equation is now 5 = 72/x, and you need to solve for x. The interest rate on this investment would, per this rule, need to be around 14.4%. In this regard, another effective rule of 72 is: Compound annual interest rate = 72 / Years it would take to double your investment.
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