What Do We Mean By Rule of 72 and Rule of 69 When Can These Rules Be Used

September 30th, 2009 Comments off
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Question:

Can you tell me what is Rule 72 and Rule 69? When can I use these Rules?

Suggested Answer:

(a)     What are Rule 72 & Rule 69:

Rule 72 is a rule-of-thumb method used to determine how many years it takes to double in investment money.

For example, using the rule of 72, dividing the number 72 by the fixed rate of return gives the number of years it takes for annual earnings from the investment to double.

The formula is =72/r (in percent)

And

Rule 69 is similar to Rule 72 which states how long it takes an amount of money invested at r percent per period to double.

The formula is: 69/4 ( in percent) +0.35 period

Illustrated Example:

Jim bought a piece of property yielding an annual return of 25% . This investment will double in less than three years because

Using Rule 72 = 72/25 =2.88 years

Using Rule 69=69/25 +0.35 =3.11 years

(b)  Both these Rules as mentioned are handy rules of thumb to determine how long it takes to double money in an investment. They are useful for investors who require some quick references to see the number of years for their investment to double WITHOUT referring to any present value and future value tables or using a financial calculator.

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