Rule of 72 is used to calculate approximate rate of interest or expected duration to get the investment double.
Everyone want money.. want to get their money doubled as soon as possible. Some one set the target years, & someone estimate expected rate of interest for target years.. Every exercise is around getting the money grown from an Investment. Instead of involving in complex mathematical functions, this Rule of 72 is a very best short cut to find out the approximate time frame or rate of return.
This rule of 72, takes into consideration the Compounding rate of interest.
Estimate the duration of Investment getting Double at current rate if Interest.
Rule of 72 is method of estimating, how many years it will take for an investment to Double in value.
The current rate of interest is used & 72 is divided by current rate of interest.
For example, the current rate of interest is @ 8%, expected duration to make investment double is..
72 / 8 (p.c.) = 9 years.
It means investment at 8% rate of return, will grow double in approx. 9 years.
Estimate the Rate of Interest on Investment getting Double in expected period.
Rule of 72 is a method of estimating the Expected rate of return for doubling the investment in expected Duration.
For example, You want to get your investment doubled in next 5 years, then would be the rate of Investment today?
72 / 5 years = 14.4 %
Approx. 14.4% should be the rate of interest at which the investments are made to get doubled in next 5 years.
