Business Questions and Answers

Start Your Free Trial

What is the Rule of 72, and how might it affect your personal savings and investment activities? What is compound interest and simple interest and how do they affect investment decisions?

The Rule of 72 is a method of calculating the length of time in which an investment subject to compound interest will double its original value. It can also be used to calculate the effect of inflation. It is useful for both calculating the return on personal savings and for estimating losses in the real value of mutual funds and other investments due to inflation.

Expert Answers info

Michael Delroy, M.B.A. eNotes educator | Certified Educator

briefcaseEditor, Teaching Assistant

bookM.B.A. from University of Copenhagen


calendarEducator since 2019

write41 answers

starTop subjects are Literature, Social Sciences, and Business

The Rule of 72 is a method to ascertain the length of time it will take for an investment to double when it is subject to compounding interest. Compound interest is calculated on the basis of the original amount plus the accumulated interest to date, while simple interest does not take any previously accrued interest into account. The method provides only an approximate answer. It can also be used to calculate how long a given rate of inflation will reduce a real invested amount by...

(The entire section contains 247 words.)

Unlock This Answer Now


check Approved by eNotes Editorial