Rule of 72 Mr. Roeshink – Business Operations. The Rules Explained Choice of rule The value 72 is a convenient choice of numerator, since it has many.

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Presentation transcript:

Rule of 72 Mr. Roeshink – Business Operations

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

RateActual YearsRule of % % % % % % % % % % % % % % %

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

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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