Posted by: gowrisivaprasad | November 15, 2007

Rule of 72

 This is something I learnt some years ago when doing my MBA, but had forgotten all about it until I saw it mentioned somewhere today.

Rule of 72 is useful as a quick rule of thumb calculation in finance.  If you want to know how long will it take to double your money, divide 72 by the interest rate. For eg, if you are getting a 10% return on your money it will take 72/10=7.2 years to double your money.

Same way, you can use it to calculate the effect of inflation. If inflation is 5%, the buying power of your money will halve in (72/5=) 14.4 years.

Don’t forget that its a rule of thumb, not a precise calculation!

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