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WIKI ANALYSIS| This article is part of WikiProject Definitions. Consider editing to improve it. View articles referencing this definition. |
In finance, the rule of 72, the rule of 71, the rule of 70 and the rule of 69.3 are methods for estimating an investment's doubling time or halving time. These rules apply to exponential growth and decay respectively, and are therefore used for compound interest as opposed to simple interest calculations.
For example, if an investment is expected to returns 10% a year, then it will double in roughly 7 years (72 divided by 10). Conversely, if an investment doubled in 5 years, then it grew at about 14% a year (72 divided by 5).
Sources:
Wikipedia, "Rule of 72" - http://en.wikipedia.org/wiki/Rule_of_72
Investopedia, "What is the rule of 72?" - http://www.investopedia.com/ask/answers/04/040104.asp
Investopedia, "Rule of 72" - http://www.investopedia.com/terms/r/ruleof72.asp
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