
^{ }
Rule of 72
Einstein’s Rule of 72 is considered one of the most important investment tools ever formulated. To calculate how
soon and/or at what interest rate one’s investment money will double by POC, the Rule of 72 is a simple formula to use.
Table 3
Table 3 shows how to apply the Rule of 72 to calculate the number of years required to double an investment.
· 72 is the fixed number.
· 72 is divided by the interest rate.
^{
TO FIND THE NUMBER OF YEARS REQUIRED
FOR AN INVESTMENT TO DOUBLE} 
^{
} 72 = Number of Years Required for an Investment to Double Interest
Rate 
^{
Question: If an investor earns 8% interest, compounded annually, how many years are required for his/her
investment to double?
Answer: To calculate the number of years required for the investment to double, divide 72 by 8. The
answer is 9 years.
Table 4
Table 4 shows how to apply the Rule of 72 to calculate the interest rate required to double an investment
in a specified number of years.
· 72 is the fixed number.
· 72 is divided by the number of years. }
^{
TO FIND THE INTEREST RATE REQUIRED
FOR AN INVESTMENT TO DOUBLE} 
^{
} 72 = Interest Rate Required to Double an Investment Number of Years
in a Specified Number of Years 
^{
Question: If an investor wants to double his/her money in 5 years, what interest rate is required?
Answer: To calculate the interest rate required, the investor would divide 72 by 5. The answer is 14.4%
Calculation of Compounding by Rule of 72
Vs.
Actual Value Calculated by Computerized Compound Interest Calculator
Table 5
Table 5 shows the difference in the end values of a onetime investment of $10,000 (in 9year increments),
using the Rule of 72* vs. using a computerized compound interest calculator.** In both examples, the interest rate is 8%,
compounded annually, and the duration of the investment is 54 years. }
^{
Year} 
^{
Rule of 72
in $} 
^{
Computerized Calculations
in $} 
^{
0} 
^{
10,000} 
^{
10,000.00} 
^{
9} 
^{
20,000} 
^{
19,990.05} 
^{
18} 
^{
40,000} 
^{
39,960.19} 
^{
27} 
^{
80,000} 
^{
79,880.61} 
^{
36} 
^{
160,000} 
^{
159,681.72} 
^{
45} 
^{
320,000} 
^{
319,204.49} 
^{
54} 
^{
640,000} 
^{
638,091.26} 
^{
Note: The values in the above table differ only slightly between the two methods of calculation used.
The Rule of 72 is a reliable tool for investment purposes, as long as the interest rate is less than about 20%. At higher
interest rates, significant errors occur.
*moneychimp. Rule of 72 calculator. http://www.moneychimp.com/features/rule72.htm
**1728 Software Systems’ Compound Interest Calculator. [Computerized]
http://www.1728.com/compint.htm}




