Wednesday, June 27, 2007

Einstein's Rule Of 72 - Easy Calculation of Compound Interest

The other day I was doing a little bit of investing and needed to do some quick compound interest calculations. As usual when this happened my brain gears came to a halt, but then I remembered something about Einstein and 72 so I looked it up and voila, Einstein's Rule of 72 to calculate compound interest. It is a great little thing to know about and can make you the center of attention at parties.

The rule of 72 says that in order to find the number of years required to double your money at a given interest rate, you can divide the interest rate into 72. For example, if you want to know how long it will take to double your money at twelve percent interest, divide 12 into 72 and get 6 years.

You can also find the interest rate required to double your money in a given number of years. For example, if you want to double your money in nine years, just divide 9 into 72 to find that it will require an interest rate of about 8 percent.

As long as the interest rate is less than twenty percent, the rule of 72 is accurate.

Update: Fix typo in second example when doubling money in nine years.

4 comments:

Jason Sweby said...

Well that's just crazy, thanks for sharing that!

Paul said...

Very interesting, but why the mention of the viola? I'd imagine Einstein playing the violin!

Sorry, I couldn't resist it.

Best wishes

Clint said...

I believe there is a typo with the "if you want to double your money in six years.." bit.

Chris Bensen said...

Clint,

Thanks Clint. I just fixed it.

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