1. What is the Rule of 72?

The Rule of 72 is a simple formula used to estimate the number of years required to double an investment at a fixed annual rate of return. It provides a quick way to understand the power of compound interest.

2. How Does the Calculator Work?

The calculator uses the Rule of 72 formula:

Where:

• \( Years \) — Estimated time to double investment
• \( Rate \) — Annual interest rate (%)

Explanation: The formula divides 72 by the annual rate of return to estimate how many years it will take for an investment to double in value.

3. Importance of the Rule of 72

Details: This rule provides a quick mental calculation to compare different investment opportunities and understand the impact of compound growth over time.

4. Using the Calculator

Tips: Enter the annual interest rate as a percentage (e.g., enter "6" for 6%). The rate must be greater than 0.

5. Frequently Asked Questions (FAQ)

Q1: How accurate is the Rule of 72?
A: It's reasonably accurate for interest rates between 6% and 10%. For rates outside this range, the approximation becomes less precise.

Q2: Why is the number 72 used in this formula?
A: 72 has many divisors (1, 2, 3, 4, 6, 8, 9, 12, 18, 24, 36, 72) making mental calculations easier, and it provides a good approximation for typical interest rates.

Q3: Can the Rule of 72 be used for other applications?
A: Yes, it can also estimate the effect of inflation on purchasing power or population growth rates.

Q4: What's the difference between Rule of 72 and Rule of 69.3?
A: Rule of 69.3 uses natural logarithms and is more accurate for continuous compounding, while Rule of 72 is better for annual compounding.

Q5: Does the Rule of 72 work for negative returns?
A: No, it's designed for positive growth rates. For negative returns, it would estimate how long until value is halved, but this is less accurate.