Have you always wanted to be able to do compound interest problems in your head? Perhaps not... but it's a very useful skill to have because it gives you a lightning fast benchmark to determine how good (or not so good) a potential investment is likely to be.
The rule says that to find the number of years required to double your money at a given interest rate, you just divide the interest rate into 72. 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.
Y = 72 / r and r = 72 / Y
where Y and r are the years and interest rate, respectively.
Compound Interest Curve
Suppose you invest $100 at a compound interest rate of 10%. The rule of 72 tells you that your money will double every seven years, approximately:
Years | Balance | |
Now | $100 | |
7 | $200 | (doubles every |
14 | $400 | seven years) |
21 | $800 |
If you graph these points, you start to see the familiar compound interest curve:
Practice using the Rule of 72
It's good to practice with the rule of 72 to get an intuitive feeling for the way compound interest works. So...
Why Stop at a Double?
There's nothing sacred about doubling your money. You can also get a simple estimate for other growth factors, as this calculator shows:
Why Does the Rule of 72 Work?
If you want to know more, see this explanation of why the rule of 72 works. (Brace yourself, because it's slightly geeked out.)
Engineering Economics Nội dung chính Show
- A. 13.7 years
- B. 14.7 years
- C. 14.2 years
- D. 15.3 years
Answer: Option C.
Explanation:
No answer description available for this question.
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How long will it take money to double itself at 5% compounded annually?
The expression for the compound interest amount. Substitute the known values. Thus, it will take 14.20 year.
How long will it take money to double itself if invested at 5% compounded quarterly?
Answer and Explanation: Substitute the known values. Thus, it will take 14.20 year.
How long will it take money to double itself if invested at 10% compounded annually?
A 10% interest rate will double your investment in about 7 years (72 ∕ 10 = 7.2); an amount invested at a 12% interest rate will double in about 6 years (72 ∕ 12 = 6). Using the Rule of 72, you can easily determine how long it will take to double your money.
How long will it take money to triple itself if invested at 5% simple interest?
1 Expert Answer It will take 22.52 years to triple the investment at interest rate of 5%.