Pages

Friday, April 26, 2013

Interest–Part 3 Rule of 72

 

A quick and easy way to calculate compound interest is using the rule of 72.

In finance, the rule of 72 is used to estimate how many periods the investment will be doubled, given the interest percentage per period.

The formula is very simple

1

If you can get a 12% interest or return on your investment per year, how many years will you double your money? If you invest Rp 10,000,000, when will it be Rp 20,000,000?

n = 72 / 12

n = 6

So it will take approximately 6 years to double your money or make your investment become Rp 20,000,000.

 

Let’s take another example. If you want to double your money in 3 years, what is the rate of return that you need?

3 = 72 / r

r = 24

So you will need an interest of 24%

 

What is the number if you want to know when your money is tripled? Use Rule of 114

What is the number if you want to know when your money is quadrupled? Use Rule of 144

Remember to use this rule as an ESTIMATE because it is not meant to be exact. It is good for rough calculation that you can use without a financial calculator or spreadsheet.

Learn and Grow!

Inge Santoso, B Com, CFP®

1 comment:

Retta Matson said...

Rule 72.. this is something new. I am sure this is another useful way to earn more on what you have..