The Rule of 72 provides an easy way to estimate how long it will take an investment to double in value based on the annual interest rate. The rule states that the interest rate multiplied by the number of years invested should equal 72. To calculate the time to double, divide 72 by the annual interest rate. To calculate the rate needed to double in a given time, divide 72 by that number of years. The rule is an approximation that becomes less accurate at higher interest rates.

1. The Rule of 72
An investment doubles in value when the interest rate multiplied by the
number of years an investment is held equals 72.
The rule of 72 is expressed by the formula:
r x t = 72, where
r = percent rate compounded annually
1

2. The relationship between r, t, and 72 can be summarized
2

3. To calculate the time required for an investment to double: divide
72 by the rate (ignoring the % symbol)
To calculate the rate required for an investment to double: divide 72 by the
time.
Note: The rule of 72 always refers to interest that is compounded annually.
Note: The rule of 72 is only an approximation. The approximation becomes
less accurate as the interest rate increases. The compound interest
formula is used for more accurate results.
3

4. Example 1
Ernest Dollar invests $4000 at an interest rate of 6%, compounded
annually. Using the rule of 72, estimate how many years it will take
Ernest’s investment to double.
4

5. Assignment
Read p 34 ­ 37 Page 38 Question 2­9
5