What is the “Rule of 72” used to estimate?
1. The interest rate needed to double an investment
2. The number of years it takes to double an investment
3. The value of a stock
4. The total amount of taxes owed
Answer:
2. The number of years it takes to double an investment
The Rule of 72 is a simple financial formula that estimates the number of years it takes for an investment to double in value by dividing 72 by the annual interest rate. For example, an investment with a 6% annual return will double in approximately 12 years (72 ÷ 6 = 12). It’s important to note the rule is an approximation and is most accurate for interest rates between 5% and 10%.
