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.
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...
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