The Rule of 72

How many times one see advertisements in newspapers and also on various internet sites that double your money in few days or years, and majority of people ask this question how to double money but the fact is there is no magic formula or way to double your money. In finance there is a formula for calculating the period after which the money is doubled if you know the interest rate, that formula is called rule of 72.

Rule of 72 is the simplest way of knowing the period after which your money will be doubled, and that is why it is also called rule of thumb, the formula for rule of 72 is = 72/rate of interest. So for example if the rate of interest is 6 percent than time for your investment to be double will be 72/6 = 12 years, and if rate of interest is 10 percent than it will take 7.2 years (72/10) for your investment to be double.

As one can see from the above that rate of interest play very important part in determining the time frame during which the investment will be twice from current levels and higher the interest rate the more quickly the money will be doubled.

0 comments… add one

Leave a Comment