What is the best definition of rule 72-?

The Rule of 72 is a simplified way to estimate how long it takes for an investment to double in value, given a fixed annual interest rate. It's a helpful tool for quick calculations, especially when dealing with compound interest.

Here's the breakdown:

* Divide 72 by the interest rate: This gives you an approximate number of years it takes for your investment to double.

* Example: If you invest at 8% interest, 72/8 = 9 years. This means your investment will roughly double in 9 years.

Key Points:

* Approximation: The Rule of 72 is an estimation and may not be perfectly accurate, especially at higher interest rates.

* Compounding: The rule applies to compounding interest, where interest earned is added to the principal, generating further interest.

* Fixed Interest Rate: The rule assumes a fixed interest rate throughout the investment period.

* Simplicity: Its simplicity makes it easy to use and understand, even without complex calculations.

Note: While commonly used, the Rule of 72 isn't a strict mathematical formula. The actual time for doubling an investment can vary slightly depending on the specific interest rate and compounding frequency.