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Rule of 72

\begin{figure}\begin{center}\BoxedEPSF{Ruleof72.epsf scaled 830}\end{center}\end{figure}

The time required for a given Principal to double (assuming $n=1$ Conversion Period) for Compound Interest is given by solving

\end{displaymath} (1)

t={\ln 2\over\ln(1+r)},
\end{displaymath} (2)

where Ln is the Natural Logarithm. This function can be approximated by the so-called ``rule of 72'':
t\approx {0.72\over r}.
\end{displaymath} (3)

The above plots show the actual doubling time $t$ (left plot) and difference between actual and time calculated using the rule of 72 (right plot) as a function of the interest rate $r$.

See also Compound Interest, Interest


Avanzini, J. F. Rapid Debt-Reduction Strategies. Fort Worth, TX: HIS Pub., 1990.

© 1996-9 Eric W. Weisstein