What annual rate of interest compounded annually is required to double an investment in 6 years?

Calculator Use

Use the Rule of 72 to estimate how long it will take to double an investment at a given interest rate. Divide 72 by the interest rate to see how long it will take to double your money on an investment.

Alternatively you can calculate what interest rate you need to double your investment within a certain time period. For example if you wanted to double an investment in 5 years, divide 72 by 5 to learn that you'll need to earn 14.4% interest annually on your investment for 5 years: 14.4 × 5 = 72.

The Rule of 72 is a simplified version of the more involved compound interest calculation. It is a useful rule of thumb for estimating the doubling of an investment. This calculator provides both the Rule of 72 estimate as well as the precise answer resulting from the formal compound interest calculation.

Interest RateThe annual nominal interest rate of your investment in percent.Time Period in YearsThe number of years the sum of money will remain invested. You can also input months or any period of time as long as the interest rate you input is compounded at the same frequency.CompoundingThis calculator assumes the frequency of compounding is once per period. It also assumes that accrued interest is compounded over time.

Rule of 72 Formula

The Rule of 72 is a simple way to estimate a compound interest calculation for doubling an investment. The formula is interest rate multiplied by the number of time periods = 72:

R * t = 72

where

• R = interest rate per period as a percentage
• t = number of periods

Commonly, periods are years so R is the interest rate per year and t is the number of years. You can calculate the number of years to double your investment at some known interest rate by solving for t: t = 72 ÷ R. You can also calculate the interest rate required to double your money within a known time frame by solving for R: R = 72 ÷ t.

Derivation of the Rule of 72 Formula

The basic compound interest formula is:

A = P(1 + r)t,

where A is the accrued amount, P is the principal investment, r is the interest rate per period in decimal form, and t is the number of periods. If we change this formula to show that the accrued amount is twice the principal investment, P, then we have A = 2P. Rewriting the formula:

2P = P(1 + r)t , and dividing by P on both sides gives us

(1 + r)t = 2

We can solve this equation for t by taking the natural log, ln(), of both sides,

\( t \times ln(1+r)=ln(2) \)

and isolating t on the left:

\( t = \dfrac{ln(2)}{ln(1+r)} \)

We can rewrite this to an equivalent form:

\( t = \dfrac{ln(2)}{r}\times\dfrac{r}{ln(1+r)} \)

Solving ln(2) = 0.69 rounded to 2 decimal places and solving the second term for 8% (r=0.08):*

\( t = \dfrac{0.69}{r}\times\dfrac{0.08}{ln(1.08)}=\dfrac{0.69}{r}(1.0395) \)

Solving this equation for r times t:

\( rt=0.69\times1.0395\approx0.72 \)

Finally, multiply both sides by 100 to put the decimal rate r into the percentage rate R:

R*t = 72

*8% is used as a common average and makes this formula most accurate for interest rates from 6% to 10%.

Example Calculations in Years

If you invest a sum of money at 6% interest per year, how long will it take you to double your investment?

t=72/R = 72/6 = 12 years

What interest rate do you need to double your money in 10 years?

R = 72/t = 72/10 = 7.2%

Example Calculation in Months

If you invest a sum of money at 0.5% interest per month, how long will it take you to double your investment?

t=72/R = 72/0.5 = 144 months (since R is a monthly rate the answer is in months rather than years)

144 months = 144 months / 12 months per years = 12 years

References

Vaaler, Leslie Jane Federer; Daniel, James W. Mathematical Interest Theory (Second Edition), Washington DC: The Mathematical Association of America, 2009, page 75.

Weisstein, Eric W. "Rule of 72." From MathWorld--A Wolfram Web Resource, Rule of 72.

Click here to see ALL problems on Finance Question 764362: what rate of interest compounded annually is required to double and investment in 23 years? Found 2 solutions by solver91311, lwsshak3:Answer by solver91311(24713)   (Show Source): You can put this solution on YOUR website! Where is the future value, is the present value, is the interest rate expressed as a decimal, is the number of compounding periods per year, and is the number of years. For your situation, you don't care about the actual values of and , just that the ratio is 2:1. Your , and your for annual compounding. So: Solve for John Egw to Beta kai to Sigma My calculator said it, I believe it, that settles it Answer by lwsshak3(11628)   (Show Source): You can put this solution on YOUR website! what rate of interest compounded annually is required to double and investment in 23 years? *** Compound interest formula: A=P(1+i)^n, P=initial investment, i=interest rate per period, n=number of compound periods, A=amount after n periods A/P=(1+i)^n .. For given problem: A/P=2 i=? n=23 .. 2=(1+i)^23 take log of both sides log2=23log(1+i) log(1+i)=log2/23≈0.013088 convert to exponential form: (base(10) raised to log of number(0.013088)=number(1+i) 10^(0.013088)=1+i 1.030595≈1+i i≈.0306≈3.06% rate of interest compounded annually required to double and investment in 23 years=3.06% check: (1+i)^23=(1.0306)^23≈2

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