# the rule of 72

23 results back to index

pages: 505 words: 142,118

A Man for All Markets by Edward O. Thorp

To get quick approximate answers to compound interest problems like these, accountants have a handy trick called “the rule of 72.” It says: If money grows at a percentage R in each period then, with all gains reinvested, it will double in 72/R periods. Example: Your money grows at 8 percent per year. If you reinvest your gains, how long does it take to double? By the rule of 72, it takes 72 ÷ 8 = 9 years, since a period in this example is one year. Example: The net after-tax return from your market-neutral hedge fund averages 12 percent a year. You start with \$1 million and reinvest your net profits. How much will you have in twenty-four years? By the rule of 72, your money doubles in about six years. Then it doubles again in the next six years, and so forth, for 24 ÷ 6 = 4 doublings. So it multiplies by 2 × 2 × 2 × 2 = 16 and becomes \$16 million. For more on the rule of 72, see appendix C.

The return series depends on the time period and on the specific index chosen. Appendix C * * * THE RULE OF 72 AND MORE The rule of 72 gives quick approximate answers to compound interest and compound growth problems. The rule tells us how many periods it takes for wealth to double with a specified rate of return, and is exact for a rate of 7.85 percent. For smaller rates, doubling is a little quicker than what the rule calculates; for greater rates, it takes a little longer. The table compares the rule in column 2 with the exact value in column 3. The “exact rule” column shows the number that should replace 72 to calculate each rate of return. For an 8 percent return, the number, rounded to two decimal places, is 72.05, which shows how close the rule of 72 is. Notice that the number in column 4 for the exact rule should equal the column 1 return per period multiplied by the corresponding values in column 3 (actual number of periods to double), but that the column 4 figures don’t quite agree with this.

Practice in the UK adds six zeros at each stage so a billion has twelve zeros, etc. one standard deviation Standard deviation indicates the size of a typical fluctuation around an average value. to the news See Nassim Taleb’s readable and insightful book Fooled by Randomness. quick mental estimate By the rule of 72, discussed later, a 24 percent annual growth rate doubles money in about 72/24=3 years. After nine years we have three doublings, to two, then four, and finally eight times the starting value. But it actually takes about 3.22 years because the rule of 72 underestimates the doubling time more and more as rates increase beyond 8 percent. of the Alamo The story of this epic battle and the subsequent ordeals of those held captive by the Japanese is told by Eric Morris in Corregidor: The American Alamo of World War II, Stein and Day, New York, 1981, reprinted paperback, Cooper Square Press, New York, 2000.

pages: 543 words: 153,550

Model Thinker: What You Need to Know to Make Data Work for You by Scott E. Page

When applied to finance, the variable is money. Using the equation, we can calculate that a \$1,000 bond paying 5% annual interest increases in value by \$50 in year one and by more than \$100 in year twenty. To draw clean inferences, we assume a constant growth rate. Given that assumption, we can manipulate the exponential growth equation to derive the rule of 72. Rule of 72 If a variable grows by a percentage R (less than 15%) each period, then the following provides a good approximation: Periods to Double ≈ The rule of 72 quantifies the cumulative effect of higher growth rates. In 1966, Zimbabwe had a per capita GDP of \$2,000, twice that of Botswana. Over the next thirty-six years, Zimbabwe experienced little growth. Botswana, meanwhile, averaged 6% growth, meaning that Botswana’s GDP doubled every twelve years. In thirty-six years, it doubled three times, an 8-fold increase.

Had nothing changed, Malthus would have been correct. But he ignored the potential for innovation—the focus of models later in this chapter. Innovation subverted the trend. The exponential growth model can be applied to the growth of species as well, and not just to rabbits. When you acquire a bacterial infection, tiny bacteria reproduce at incredible rates. Bacteria in human sinuses grow at around 4% a minute. By applying the rule of 72, we can calculate they double every twenty minutes. In a single day, each initial bacterial cell spawns over a billion offspring.2 Their growth stops when the physical constraint of your sinuses leaves them no room. Food constraints, predators, and lack of space all reduce growth. Some species, such as deer in suburban America or the hippos brought to Colombia by drug lord Pablo Escobar, encounter few constraints on growth and their population grows rapidly, though not at bacterial rates.3 A convex function with a positive slope increases at an increasing value.

Though people lost jobs, Craigslist made the economy more efficient by increasing the technology parameter. In a less pluralistic society, the newspaper industry might have lobbied the government to stop Craigslist. Doing so would have slowed growth. Japanese Chinese Economic Dominance Linear model + rule of 72: From 1960 to 1970 Japan’s GDP grew at a 10% annual rate. A linear projection of continued 10% increases would result in a doubling of the Japanese economy every seven years (using the rule of 72). In 1970, Japanese per capita GDP was approximately \$2,000 in current US dollars. Had that trend continued, by 2012 per capita GDP would have doubled six times, resulting in a per capita GDP of \$128,000. Growth model: This model explains Japanese growth as due to investments in physical capital. The model predicts concave growth rates over time. The growth model predicts that as Japan’s GDP approached that of the United States and Europe, its growth rate should decrease to the historical cross-country average of 1–2%.18 The evidence supports this.

Bulletproof Problem Solving by Charles Conn, Robert McLean

This extreme version of the 80:20 rule starkly highlights the dilemma for policymakers, in this case between energy, livelihoods, and the environment. Compound growth is key to understanding how wealth builds, how enterprises scale quickly, and how some populations grow. Warren Buffett said: “My wealth has come from a combination of living in America, some lucky genes, and compound interest.”4 A really quick way to estimate compounding effects is to use the Rule of 72.5 The rule of 72 allows you to estimate how long it takes for an amount to double given its growth rate by dividing 72 by the rate of growth. So, if the growth rate is 5% an amount will double in about 14 years (72/5 = 14.4 years). If the growth rate is 15%, doubling occurs in four to five years. In a team meeting, Rob asked our research team what a \$1000 investment in Amazon would be if you invested at the time of the initial stock offering in 1997.

In a team meeting, Rob asked our research team what a \$1000 investment in Amazon would be if you invested at the time of the initial stock offering in 1997. Charles thought about it for about 90 seconds: He tried a low rate of compounding of 5%, where doubling occurs every 14 years, then a high rate of 50% where doubling occurs every 18 months, before settling on \$100k. The actual answer is \$83k based on a 36% compounding rate, doubling every 2 years. Pretty good with no facts, just the Rule of 72! Where do errors occur with the rule of 72? When there is a change in the growth rate, which of course is often the case over longer periods. This makes sense, as few things continue to compound forever (try the old trick of putting a grain of rice on the first square of a chessboard and double the number on each successive square). A useful heuristic if you are involved in estimating the adoption rate for a new innovation is the S‐curve, which shows a common pattern of sales with a new product or a new market.

pages: 368 words: 145,841

Financial Independence by John J. Vento

You can truly appreciate this over time, because the outcome can be astonishing. The Rule of 72 Before I describe how to use the financial tables provided in the following pages, I would like to explain the Rule of 72, which unlocks the answer to how long it will take you to double your money. Of course, the answer to this depends on your interest rate (rate of return). Simply divide the assumed rate of return into 72. For example: • If your assumed rate of return is 10 percent, divide 10 into 72, which equals 7.2 years. • If your assumed rate of return is 5 percent, divide 5 into 72, which equals 14.4 years. So, for the purpose of this example, let us assume a rate of return of 10 percent per year and a starting point of \$25,000. Based on the Rule of 72 (see Exhibit 11.1), here’s how that amount will increase: • • • • • • c11.indd 286 In 7.2 years, that \$25,000 will double to \$50,000.

They both managed to save \$20,000, but they ended up with significantly different results when they reached the age of 65: Because Brian started 10 years later than Melanie, his savings were \$100,000 less than Melanie’s! This example verifies that time is money and that one of your most valuable financial assets is time. By getting off to an early start with your retirement savings program, you can take advantage of the power of compounding. Your annual savings have the potential of earning a rate of return, and so does your reinvested earnings. Look at the Rule of 72 in Exhibit 11.1 to see just how powerful compounding can be. This is the secret to financial independence: by letting your money work for you, eventually, you will no longer have to work to maintain your desired standard of living. If you have been finding it difficult to save money on a regular basis, implement the following savings strategies that will take money directly from your paycheck on a pre-tax basis.

pages: 261 words: 70,584

Retirementology: Rethinking the American Dream in a New Economy by Gregory Brandon Salsbury

No investment is going to double every day like the Magic Penny. In the world of finance, many professionals utilize a mathematical formula called the Rule of 72, and it provides a thumbnail estimate of how long it may take an investor’s portfolio to double in value. The Rule of 72 simply divides 72 by the assumed rate of return to get a rough estimate of how many years it will take for the initial investment to double. For example, if we assume a rate of return of 7.2%, your money will double every 10 years. (Using this rule, at a 10% rate of return, your money would double in 7.2 years.) Simple as that. However, when you apply the reality of taxation, the formula can change dramatically. The Rule of 72 becomes a concept I call 72/33/50; assuming a 33% tax rate, it takes 50% longer to double your money. Sticking with a 7.2% rate of return, net of 33% taxes, it will take 15 years to double your money.

pages: 389 words: 81,596

Quit Like a Millionaire: No Gimmicks, Luck, or Trust Fund Required by Kristy Shen, Bryce Leung

If you know the return you’re earning on an investment (say, 6 percent per year), divide 72 by that number (72 / 6 = 12). This gives you the number of years it’ll take for your money to double. If I invest \$1,000 with a return of 6 percent a year, it’ll compound into \$2,000 in 12 years without my investing another cent. That balance goes up over time, because the money I make makes more money, which in turn makes even more money. When you’re an investor, the Rule of 72 is your friend. It helps your money grow. But if you have debt, the Rule of 72 is your enemy. It works against you to take what little money you have. Credit cards typically have interest rates around 20 percent, so if I borrow \$1,000 to buy a flat-screen TV, it would take only 72 / 20 = 3.6 years for my debt to double. Another 3.6 years and the debt quadruples. This is why debt is so scary. If you don’t kill it, the debt monster gets bigger and bigger until it’s consuming everything in its path.

Not only does it bleed you dry, it makes you terrified of the sun by trapping you indoors, shopping for crap you don’t need, and/or shackled to your desk for years. Since consumer debt has the highest interest rate, you want to slay this bad boy first. Consumer debt should be treated as what it is: a financial emergency that you have to take care of now. Here are a few things you can do to sharpen your stake. 1. Cut expenses to the bone, even if it hurts. Consumer debt has the highest interest rate of all and, as per the Rule of 72, doubles faster than any other type of debt. You need to treat this as a crisis. There is absolutely no point in investing or even saving much cash if you’re carrying debt with a 10–20 percent interest rate. Paying it off should be your number one financial priority. If you need to get a side gig or a roommate, or learn to say no to dinners out, do it. 2. Order your loans based on interest rate, highest to lowest.

pages: 357 words: 91,331

I Will Teach You To Be Rich by Sethi, Ramit

When you send money to your Roth IRA account, it just sits there. You’ll need to invest the money to start making good returns. The easiest investment is a lifecycle fund. You can just buy it, set up automatic monthly contributions, and forget about it. (If you really want more control, you can pick individual index funds instead of lifecycle funds, which I’ll discuss on page 188.) The Rule of 72 * * * The Rule of 72 is a fast trick you can do to figure out how long it will take to double your money. Here’s how it works: Divide the number 72 by the return rate you’re getting, and you’ll have the number of years you must invest in order to double your money. (For the math geeks among us, here’s the equation: 72 ÷ return rate = number of years.) For example, if you’re getting a 10 percent interest rate from an index fund, it would take you approximately seven years (72 ÷ 10) to double your money.

pages: 335 words: 94,657

The Bogleheads' Guide to Investing by Taylor Larimore, Michael Leboeuf, Mel Lindauer

THE MAGIC IS IN THE COMPOUNDING Most people earning \$25,000 a year believe that their only shot at becoming a millionaire is to win the lottery. The truth is that the odds of anyone winning a big lottery are less than the odds of being struck twice by lightning in a lifetime. However, the power of compound interest and the accompanying Rule of 72 illustrate how anyone can slowly transform small change into large fortunes over time. The Rule of 72 is very simple: To determine how many years it will take an investment to double in value, simply divide 72 by the annual rate of return. For example, an investment that returns 8 percent doubles every 9 years (72/8 = 9). Similarly, an investment that returns 9 percent doubles every 8 years and one that returns 12 percent doubles every 6 years. On the surface that may not seem like such a big deal, until you realize that every time the money doubles, it becomes 4, then 8, then 16, and then 32 times your original investment.

By starting 10 years earlier and making one third of the investment, Eric ends up with 29 percent more. We have all heard the old cliches: If I only knew then what I know now. We are too soon old and too late smart. 0 Youth is too precious to be wasted on the young. If you are a young person, we strongly encourage you use the leverage of your youth to make the power of compounding work for you. And if you are no longer young, it's even more important. Use the time you have to make the Rule of 72 work for you. THIS ABOVE ALL: SAVING IS THE KEY TO WEALTH As you will soon learn, the Boglehead approach to investing is easy to understand and easy to do. It's so simple that you can teach it to your children, and we urge you to do so. For most people the most difficult part of the process is acquiring the habit of saving. Clear that one hurdle, and the rest is easy. What's that? You want an investment system where you don't have to save and can get rich quickly?

pages: 117 words: 31,221

Fred Schwed's Where Are the Customers' Yachts?: A Modern-Day Interpretation of an Investment Classic by Leo Gough

The situation is even beter if you can get a real rate of return of 7%, which is about the highest return you can realistically aim at from the stock market without taking excessive risk: after 5 years, the sum will have grown to £140, after 10 years to £197, after 20 years to £387 and after 25 years to £543. A useful way to estimate how long it will take an investment to double at a given rate of interest is ‘the rule of 72’. Simply divide the annual interest rate into 72, and you will get the approximate length of time it will take to double. For example, how long does it take for £100 to double at a return of 5%? 72/5 = 14.4, so it will take about 14.4 years. Since a small increase in the rate of return will make a huge difference to the growth of your investment over the long term, it is important to minimise investment charges because they can substantially reduce your overall return in later years.

pages: 621 words: 123,678

Financial Freedom: A Proven Path to All the Money You Will Ever Need by Grant Sabatier

pages: 518 words: 128,324

Destined for War: America, China, and Thucydides's Trap by Graham Allison

In 1980, China’s trade with the outside world amounted to less than \$40 billion; by 2015, it had increased one hundredfold, to \$4 trillion.4 For every two-year period since 2008, the increment of growth in China’s GDP has been larger than the entire economy of India.5 Even at its lower growth rate in 2015, China’s economy created a Greece every sixteen weeks and an Israel every twenty-five weeks. During its own remarkable progress between 1860 and 1913, when the United States shocked European capitals by surpassing Great Britain to become the world’s largest economy, America’s annual growth averaged 4 percent.6 Since 1980, China’s economy has grown at 10 percent a year. According to the Rule of 72—divide 72 by the annual growth rate to determine when an economy or investment will double—the Chinese economy has doubled every seven years. To appreciate how remarkable this is, we need a longer timeline. In the eighteenth century, Britain gave birth to the Industrial Revolution, creating what we now know as the modern world. In 1776, Adam Smith published The Wealth of Nations to explain how after millennia of poverty, market capitalism was creating wealth and a new middle class.

This was reflected in the 2010 US Nuclear Posture Review’s assertion that the US would not take any action that could negatively affect “the stability of our nuclear relationships with Russia or China.” [back] 63. Since 1988, China has spent an average of 2.01 percent of GDP on its military, while the US has spent an average of 3.9 percent. See World Bank, “Military Expenditure (% of GDP),” http://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS. [back] 64. Recall the Rule of 72: divide 72 by the annual growth rate to determine how long it will take to double. [back] 65. International Institute for Strategic Studies, The Military Balance 2016 (New York: Routledge, 2016), 19. [back] 66. Eric Heginbotham et al., The U.S.-China Military Scorecard: Forces, Geography, and the Evolving Balance of Power, 1996–2017 (Santa Monica, CA: RAND Corporation, 2015), xxxi, xxix.

The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk by William J. Bernstein

Your inflation-adjusted portfolio expected return can be calculated as follows: 1. 25% of your portfolio in small stocks: .25 ⫻ 6% ⫽ 1.5% 2. 25% of your portfolio in large stocks: .25 ⫻ 4% ⫽ 1.0% 3. 50% of your portfolio in bonds: .5 ⫻ 3% ⫽ 1.5% Thus, the real long-term expected return of your portfolio is: 1.5% ⫹ 1% ⫹ 1.5% ⫽ 4% This means that you will about double the real value of your portfolio every 18 years. (This is easily calculated from “the rule of 72,” which says that the return rate multiplied by the time it takes to double your assets will equal 72. In other words, at 6% return your capital will double every 12 years.) Take another break. Don’t look at this book for at least a few more days. In the next chapter we shall explore the strange and wondrous behavior of portfolios. Summary 1. Risk and reward are inextricably intertwined. Do not expect high returns without high risk.

pages: 670 words: 194,502

The Intelligent Investor (Collins Business Essentials) by Benjamin Graham, Jason Zweig

) * This figure, now known as the “dividend payout ratio,” has dropped considerably since Graham’s day as American tax law discouraged investors from seeking, and corporations from paying, dividends. As of year-end 2002, the payout ratio stood at 34.1% for the S & P 500-stock index and, as recently as April 2000, it hit an all-time low of just 25.3%. (See www.barra.com/ research/fundamentals.asp.) We discuss dividend policy more thoroughly in the commentary on Chapter 19. * Why is this? By “the rule of 72,” at 10% interest a given amount of money doubles in just over seven years, while at 7% it doubles in just over 10 years. When interest rates are high, the amount of money you need to set aside today to reach a given value in the future is lower—since those high interest rates will enable it to grow at a more rapid rate. Thus a rise in interest rates today makes a future stream of earnings or dividends less valuable—since the alternative of investing in bonds has become relatively more attractive

* Today’s defensive investor should probably insist on at least 10 years of continuous dividend payments (which would eliminate from consideration only one member of the Dow Jones Industrial Average—Microsoft—and would still leave at least 317 stocks to choose from among the S & P 500 index). Even insisting on 20 years of uninterrupted dividend payments would not be overly restrictive; according to Morgan Stanley, 255 companies in the S & P 500 met that standard as of year-end 2002. † The “Rule of 72” is a handy mental tool. To estimate the length of time an amount of money takes to double, simply divide its assumed growth rate into 72. At 6%, for instance, money will double in 12 years (72 divided by 6 = 12). At the 7.1% rate cited by Graham, a growth stock will double its earnings in just over 10 years (72/7.1 = 10.1 years). * Graham makes this point on p. 73. † To show that Graham’s observations are perennially true, we can substitute Microsoft for IBM and Cisco for Texas Instruments.

pages: 332 words: 81,289

Smarter Investing by Tim Hale

This is summarised in Figure 7.6. The cautious long-term investor Imagine that you are an investor that finds the whole concept of investment worrying and the loss of capital scares you. As a long-term investor of this ilk, there is one thing that you must protect against and that is inflation. Even at what seem relatively low levels of inflation, your spending power in retirement could be significantly eroded. Tip: The Rule of 72 is a useful one: divide 72 by the rate of inflation to see how quickly the price of goods will double. For example, with inflation of 3% the price of goods will double in 24 years (72/3 = 24). That is likely to be a risk that you simply cannot afford to take. Many very cautious investors simply put their cash on deposit. Take a look at Table 7.7 and ask yourself if holding cash is a low-risk strategy, when inflation is taken into account (leaving aside the credit risk issue of whether the bank the deposit is placed with is sound – after the Cyprus bailout in 2012, who knows what is safe?).

pages: 416 words: 118,592

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton G. Malkiel

Your \$100 grows to \$110 at the end of year one. Next year, you also earn 10 percent on the \$110 you start with, so you have \$121 at the end of year two. Thus, the total return over the two-year period is 21 percent. The reason it works is that the interest you earn from your original investment also earns interest. Carrying it out in year three, you have \$133.10. Compounding is powerful indeed. A useful rule, called “the rule of 72,” gives you a shortcut way to find out how long it will take to double your money. Take the interest rate you earn and divide it into the number 72, and you get the number of years it will take to double your money. For example, if the interest rate is 15 percent, it takes a bit less than five years for your money to double (72 divided by 15 = 4.8 years). The implications of various growth rates for the size of future dividends are shown in the table below.

pages: 407 words: 114,478

The Four Pillars of Investing: Lessons for Building a Winning Portfolio by William J. Bernstein

For example, at the height of the market froth in the spring of 2000, the three companies mentioned in the last paragraph sold at 48, 84, and 67 times earnings, respectively—from three to four times the valuation of a typical company. This means the market expected these companies to eventually increase their earnings relative to the size of the market to three or four times their current proportion. This is a tricky concept. Let us assume that the stock market grows its earnings at 5% per year. This means that over a 14-year period, it will approximately double its earnings. (This is according to the “Rule of 72,” which states that the earnings rate times the doubling time equals 72. In the above example, 72 divided by 5% is approximately 14. Or, alternatively, at a 12% growth rate, it takes only six years to double earnings.) If a glamorous growth company is selling at four times the P/E ratio of the rest of the market—say, 80 times earnings versus 20 times earnings—then the market is saying that during this same 14-year period, its earnings will grow by a factor of eight (4 × 2 = 8).

pages: 407 words: 116,726

Infinite Powers: How Calculus Reveals the Secrets of the Universe by Steven Strogatz

To find the unknown x such that ex = 90, turn on a scientific calculator, enter 90, press the ln x button, and there’s your answer: ln 90 ≈ 4.4498. To check it, keep that number on the screen and hit the ex button. You should get 90. As before, logs and exponentials undo each other’s actions like a stapler and a staple remover. Recondite as all this may sound, the natural logarithm is extremely practical, though often inconspicuously. For one thing, it underlies a rule of thumb known to investors and bankers as the rule of 72. To estimate how long it will take to double your money at a given annual rate of return, divide 72 by the rate of return. Thus, money growing at a 6 percent annual rate doubles after about 72/6 = 12 years. This rule of thumb follows from the properties of the natural logarithm and exponential growth and works well if the interest rate is low enough. Natural logarithms also operate behind the scenes in the carbon dating of ancient trees and bones and in art-authentication disputes.

pages: 386 words: 122,595

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated) by Charles Wheelan

From 1947 to 1975, productivity grew at an annual rate of 2.7 percent a year. From 1975 until the mid-1990s, for reasons that are still not fully understood, productivity growth slowed to 1.4 percent a year. Then it got better again; from 2000 to 2008, productivity growth returned to a much healthier 2.5 percent annually. That may seem like a trivial difference; in fact, it has a profound effect on our standard of living. One handy trick in finance and economics is the rule of 72; divide 72 by a rate of growth (or a rate of interest) and the answer will tell you roughly how long it will take for a growing quantity to double (e.g., the principal in a bank account paying 4 percent interest will double in roughly 18 years). When productivity grows at 2.7 percent a year, our standard of living doubles every twenty-seven years. At 1.4 percent, it doubles every fifty-one years.

pages: 482 words: 121,672

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Eleventh Edition) by Burton G. Malkiel

Your \$100 grows to \$110 at the end of year one. Next year, you also earn 10 percent on the \$110 you start with, so you have \$121 at the end of year two. Thus, the total return over the two-year period is 21 percent. The reason it works is that the interest you earn from your original investment also earns interest. Carrying it out in year three, you have \$133.10. Compounding is powerful indeed. A useful rule, called “the rule of 72,” provides a shortcut way to determine how long it takes for money to double. Take the interest rate you earn and divide it into the number 72, and you get the number of years it will take to double your money. For example, if the interest rate is 15 percent, it takes a bit less than five years for your money to double (72 divided by 15 = 4.8 years). The implications of various growth rates for the size of future dividends are shown in the table below.

The Simple Living Guide by Janet Luhrs

But don’t use your checking-around time as an excuse to put off saving money. At least open up a passbook savings or money market account at your bank while you are shopping for the best investment package. Remember, any investment is better than continually giving your money away to the tailor, the baker, and candlestick maker. Why line their pockets when you can line your own? To get yourself fired up about how much you can earn by investing, use the Rule of 72. This tells you how long it will take for your money to double. Divide 72 by the interest rate you are getting. If you earn 8 percent, your money takes 9 years to double (8 into 72 is 9). If you invest \$5,000 at 10 percent, you divide 72 by 10, which yields 7.2 years. After 7.2 years you will have \$10,000. For a good, simple primer on investments, take a look at a booklet titled Money for Nothing, Tips for Free, by Les Abromovitz.

Principles of Corporate Finance by Richard A. Brealey, Stewart C. Myers, Franklin Allen

A 20-year annuity starting at \$100 per year but growing at 5% per year. d. A 20-year annuity starting at \$100 per year but declining at 5% per year. CHALLENGE 38. Future values and continuous compounding Here are two useful rules of thumb. The “Rule of 72” says that with discrete compounding the time it takes for an investment to double in value is roughly 72/interest rate (in percent). The “Rule of 69” says that with continuous compounding the time that it takes to double is exactly 69.3/interest rate (in percent). a. If the annually compounded interest rate is 12%, use the Rule of 72 to calculate roughly how long it takes before your money doubles. Now work it out exactly. b. Can you prove the Rule of 69? 39. Annuities Use Excel to construct your own set of annuity tables showing the annuity factor for a selection of interest rates and years. 40.

pages: 825 words: 228,141

MONEY Master the Game: 7 Simple Steps to Financial Freedom by Tony Robbins

He has more than \$160 billion in assets under management and a record of only three losing years out of the last 22. After reading this book, you will learn a strategy that is based on Ray’s groundbreaking approach for the world’s wealthiest individuals, institutions, and governments. HOW FAST CAN YOU GO? It’s probably pretty obvious that we’d all like better returns. But what’s less obvious is the massive impact that better returns have on your time horizon for investing. The “rule of 72” says that it takes 72 years to double your money at a 1% compounded rate. So if you’ve got \$10,000 to invest at 1% compounded, you may not be around to see that money double. You can cut that timeline in half by doubling your rate to 2%, and in half again by doubling that rate to 4%! So what’s the difference between a 10% return and a 4% return? A 10% return doubles every 7.2 years; a 4% return doubles every 18 years!

pages: 1,205 words: 308,891

Bourgeois Dignity: Why Economics Can't Explain the Modern World by Deirdre N. McCloskey

All the economists who have looked into the evidence agree that the average real income per person in the world is rising faster than ever before.13 The result will be a gigantic increase in the number of scientists, designers, writers, musicians, engineers, entrepreneurs, and ordinary businesspeople devising betterments that spill over to the now rich countries allegedly lacking in dynamism. Unless one believes in mercantilist/business-school fashion that a country must “compete” to prosper from world betterment, even the leaky boats of the Phelpsian undynamic countries will rise. To appreciate what will happen in the world’s economy over the next fifty or a hundred years it’s a good idea to pause to learn the “Rule of 72.” The rule is that something (such as income) growing at 1 percent per year will double in seventy-two years. The fact is not obvious without calculation. It just happens to be true. You can confirm it by taking out your calculator and multiplying 1.01 by itself seventy-two times. It follows that if the something grows twice as fast, at 2 percent instead of 1 percent, that something will double, of course, in half the time, thirty-six years—as a runner going twice as fast will arrive at the mile marker in half the time.