Need to know when your investment will double? In finance, the rule of 72 is an easy method for deterring when an investment will double. Take the number 72 and divide it by the interest rate, which gives you the number of years. For example, a 5,000 investment at 8% interest will double to $10,000 in 9 years according to the rule of 72. Take 72 and divide by 8 (interest rate) and you end up with 9 years. You can even go the other route. If you want your money to double in 9 years, what interest rate do you need to have? 72 divided by 9 equals 8%.
I'll take a look at the rule of 72 and compare it to Excel's NPER function to find out how accurate the rule of 72 is. The NPER Function is a financial function in Excel and determines the number of periods for an investment or a loan.
Chapters:
0:00 Intro
0:40 Rule of 72
1:30 NPER function
2:20 Rule of 72 in Excel
4:10 Test doubling money
5:18 Compare percentages
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NPER Function has five arguments.
rate - The interest rate per period. Example 8%.
pmt - The payment made each period. In my example, it is 0.
pv - The present value, or total value of all payments now. In my example, it is -5000. You put in a negative since it is money you put up.
fv - [optional] The future value, or a cash balance you want after the last payment is made. Defaults to 0. In my example, I used 10000. That is double the 5000.
type - [optional] When payments are due. 0 = end of period. 1 = beginning of period. Default is 0. I did not use this argument.
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