Rule of 72 estimates doubling time by dividing 72 by interest rate
Image: FRED, Public domain, via Wikimedia Commons
Rule of 72
Rule of 72 estimates doubling time by dividing 72 by interest rate
The rule of 72 is a quick mental calculation method for estimating the time it takes for an investment to double at a given interest rate. It simplifies complex exponential growth calculations into a simple division operation. This rule is particularly useful for investors and financial planners who need to make quick decisions without access to advanced calculators or software.
Example
If you have an investment with an annual interest rate of 6%, the rule of 72 estimates that it will take approximately 12 years to double (72 ÷ 6 = 12).
Understanding the rule of 72 helps investors quickly estimate investment growth, aiding in financial planning and decision-making.
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d₁ and d₂ are in Black-Scholes: d₁ = [ln(S/K) + (r + σ²/2)T] / (σ√T), d₂ = d₁ - σ√T
d₁ = [ln(S/K) + (r + σ²/2)T] / (σ√T), d₂ = d₁ - σ√T
Educational content, not financial advice.
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