Microsoft Office

Part II
Working with Formulas and Functions
The Rule of 72
Need to make an investment decision, but don’t have a computer handy? You can use the Rule of 72 to determine
the number of years required to double your money at a particular interest rate, using annual compounding.
Just divide 72 by the interest rate. For example, consider a $10,000 investment at 6 percent interest.
How many years will it take to turn that 10 grand into 20 grand? Take 72, divide it by 6, and you get 12 years.
What if you can get a 7 percent interest rate? If so, you can double your money in a little over 10 years.
How accurate is the Rule of 72? The table that follows shows Rule of 72 estimated values versus the actual
values for various interest rates. As you can see, this simple rule is remarkably accurate. However, for interest
rates that exceed 30 percent, the accuracy drops off considerably.
Interest Rate Rule of 72 Actual
1% 72.00 69.66
2% 36.00 35.00
3% 24.00 23.45
4% 18.00 17.67
5% 14.40 14.21
6% 12.00 11.90
7% 10.29 10.24
8% 9.00 9.01
9% 8.00 8.04
10% 7.20 7.27
15% 4.80 4.96
20% 3.60 3.80
25% 2.88 3.11
30% 2.40 2.64
The Rule of 72 also works in reverse. For example, if you want to double your money in six years, divide 6 into
72; you’ll discover that you need to find an investment that pays an annual interest rate of about 12 percent.
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