The Rule of 72

The Rule of 72 is a quick and approximate way to calculate what interest or inflation % mean over time for the money you have ...





After watching this video, you can do some of your own calculations.
If you understand right, this is how the Rule of 72 works:

How much is the earning rate at an investment? 


For example:

You invest in a company 100.000 euro's.
You have an agreement to get back 200.000 euro's from the company 5 years later.

What interest rate were you earning?

Well, this is the Rule of 72 formula:    72 / 5 = 14,4%¨

Let's take another one.
You're investing in a company 400.000 euro's.
You agree with them to get back 800.000 euro's 10 years later.
What interest rate are you earning?

Formula: 72/10 = 7,2%

How much time does it take my money to double at a certain interest rate? 


Well, imagine you're putting 10.000 euro's on your savings account.
Bank A gives you 3% and bank B gives you 4%.
What difference does it make?

Bank A:
Formula: 72/3 = 24
Your 10.000 will double to 20.000 in 24 years.

Bank B:
Formula: 72/4 = 18
Your 10.000 will double to 20.000 in 18 years.







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