Rule of 72
The 72 rule is a rule of thumb from the interest calculation . The rule approximates the doubling time , i.e. the time after which an interest-bearing capital investment doubles in nominal value (through the effect of compound interest ). To do this, divide 72 by the percentage of the interest rate on the invested amount, hence the name of the rule. Variants of the 72 rule are the 70 rule and the 69 rule .
The time (in years) in which an investment with interest rate doubles (in percent per year) is, according to the 72 rule:
The same formula can be used to estimate what interest rate is required to double a capital in a given time :
In what time will an amount invested at an interest rate of (percent per year) double?
What interest rate (in percent per year) do you need to double a capital in the period ?
Of course, the rule of 72 can be applied not only to the calculation of interest, but to any kind of exponential growth . For example, the generation time , ie the time until a population doubles, with an annual population growth of about years.
According to the compound interest formula , the final capital of a fixed-income investment with initial capital at an interest rate of (in percent) after a term of years with annual interest
If you now set , apply the logarithm to both sides of the equation and solve for , the number of years until doubling results as
After converging for small amounts against (see Taylor series ) and with results as an approximation formula
If one approaches through or , it is called the 69-rule or the 70-rule. As a rule of thumb, however, the approximation has proven itself, among other things because the number has many small divisors . There is also a modification of the form for the rule of 69 in the literature
obtained by the Taylor expansion of the logarithmic function up to the second order.
The following table compares the estimates according to the rule of 72, rule of 70, rule of 69 and the modified rule of 69 with the actual values for typical interest rates.
|Rule of 72||70s rule||69 rule||69 rule
- Eric W. Weisstein : Rule of 72 . In: MathWorld (English).
- Rule of 72. Online calculator from moneychimp.com (English)
- Pamela Peterson Drake, Frank J. Fabozzi: Foundations and Applications of the Time Value of Money . John Wiley & Sons, 2009, p. 89 .
- MC Lovell: Economics With Calculus . World Scientific, 2004, pp. 361 .
- RL Finney, GB Thomas: Calculus . Addison-Wesley, 1990, pp. 360 .
- JP Gould, RL Weil: The Rule of 69 . In: Journal of Business . tape 39 , 1974, p. 397-398 .
- Richard P. Brief: A note on “rediscovery” and the rule of 69 . In: The Accounting Review . tape 52 , no. 4 , 1977, pp. 810-812 .