V.9:2 (80-81): Calculating Interest With the Rule of 72 by Raymond Rothschild

V.9:2 (80-81): Calculating Interest With the Rule of 72 by Raymond Rothschild
Item# \V09\C02\CALCULA.PDF
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Calculating Interest With the Rule of 72 by Raymond Rothschild

Despite the convenience these days of computers, business calculators and the like, it is often desirable to perform some calculations either mentally or using pencil and paper. After all, one doesn't always have the trusty laptop readily available if you have one at all. Toward this end, I would like to recommend the Rule of 72 when doing certain interest evaluations.

Curiously, I was first introduced to this rule when attending a seminar on estate planning. The presenting lawyer explained that if an amount of money was placed in a bank at compound interest until it doubled, the interest rate times the number of years would approximately equal 72. He dubbed this phenomenon "The Rule of 72."

Despite my interest in mathematical tidbits, I had never heard of this relationship before. Was this rule some quirk of nature, like Fibonacci numbers? Intrigued, I decided to investigate this premise using mathematical techniques. The algebraic calculations involved are shown in the sidebar, "Derivation of the Rule of 72."

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