What is Rule of 72?

What is Rule of 72?

Rule of 72 also known as Rule 72 is a simplified way to determine how long an investment will take to double its value at a fixed annual interest rate. The calculation is easy, divide 72 by the annual rate of return(per annum interest rate), then investors can get an estimate the number of years it will take for the initial investment to double in value.

How Rule of 72 Works?
The Rule 72 is more accurate for lower rates of return(annual interest rate or interest rate per annum). Rate of Return Rule of 72 Actual # of Years Difference (#) of Years

For Example:
Invested Amount = RM10,000
Interest Rate Per Annum = 7.2%
How many years for the RM10,000 to double to become RM20,000?
Rule of 72 calculation = 72 / 7.2 = 10 years

You can do a simple calculation to verify:
Capital Invested = RM10,000
Interest Rate Per Annum = 7.2%

From the calculation above, we can see that the amount at the end of 10th year (which is at the 1th year) is RM20,042.31, which is double the original amount of the Capital Invested RM10,000.00