Compounding Interest Formula:
Its fun time, let play some mathematical percentage game, for those who love maths this would a really fun game for you. Let us play the compounding interest formula game to learn and understand what is rule of 72, 114, 144 all about.
Rule of 72 Definition:
This Rule – 72 was introduce by luca pocioli nearly about 500 years back. Luca pocioli lived for 69 years from 1445 to 1514 calendar year. A book called ‘summa de arithematica’ has put the light on how you can estimate and evaluate duration to double your investment in simplest way by compounding interest formula. Rule says that Divide the number 72 with the rate of interest and witness the magical number which states number of years for your capital to double.
Rule of 72 Example:
For instance-1: Suppose Mr. Shah meets bank representative to get latest fixed deposit schemes. Mr. Shah uncover that best bank offer is 10% annual interest; let’s see how many years it takes to double your investment capital with rule – 72.
Formula says that Divide 72 by 10 (i.e. rate of interest)
You get result as where,
Your invested capital can be doubled in 7.2 years of a period as a compounding interest.
For instance-2: Mrs. Maria credit card limit is Rs.25,000/- and rate of interest at which she need to repay is 18%. Let’s figure out how much time period will require when Mrs. Maria will repay as a double amount.
As per formula says that Divide 72 by 18 (i.e. interest rate)
Result would be,
Within 4 years Mrs. Maria would repay double amount if she fails to clear credit card bills.
Rule of 114 Definition:
Rule 114 is similar to Rule 72 by all ways expect one item, Rule 114 will assist you to figure out the time duration required to triple your capital investment by using compounding interest formula. Rule says divide 114 by interest rate to get the years essential to triple your money.
Rule of 114 Example:
For instance-1: Mr. Jack read in one of the article that, Inflation rate is growing every year with the average rate of 9% in the country.
Formula says that Divide 114 by 9 (i.e. rate of interest)
As a result,
You get notice that, Inflation rate will get tripled in next 12.7 years at same rate of inflation year on year.
For instance-2: Mr. Patel hire a fund manager to manage his funds with guaranteed 25% returns year on year as a part of the reputed and high net worth client for the investment company.
Formula says that Divide 114 by 25 (i.e. rate of interest)
As a result,
Mr. Patel can triple his investment amount in just 4.6 years as a compounding interest.
Rule of 144 Definition:
Rule 144 is similar to Rule 114 and Rule 72 in all ways only thing which makes it unique is that, Rule 144 will assist you to identify time duration required to quadruple your capital investment evaluated by compounding interest formula. Rule says divide 144 by interest rate to get the years essential to triple your money.
Rule of 144 Example:
For instance-1: Mr. Daniel read in one of the financial magazine that, country’s GDP is growing with the average rate of 7% every year.
Formula says that Divide 144 by 7 (i.e. rate of interest)
As a result,
It will take roughly around 20.6 years to quadruple country’s GDP.
For instance-2: Mr. Michael repays its education loan at 12% per annum.
Using formula (divide 144 by 12)
As a result,
Approximately within 12 years Mr. Michael will repay quadruple amount towards education loan.
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» e-Learning Chapter 1: What is Investment and its objectives.
» e-Learning Chapter 2: Why is Investment important for Economic growth.
» e-Learning Chapter 3: Ways to Invest your money and make profit.
» e-Learning Chapter 4: What are the Best Investment Opportunities for your Retirement Income.
» e-Learning Chapter 5: What are the Legal Matters you should know before Investing.
» e-Learning Chapter 6: Different Types of Investment Risks Involved in Investing.
» e-Learning Chapter 7: When and How to Invest in Stocks.
» e-Learning Chapter 8: How Positive Attitude can improve your Investing mindset.
» e-Learning Chapter 9: Should you Borrow Money to Invest in Stock Markets or Funds.
» e-Learning Chapter 10: 5 Rules of Thumb: Key points to be consider before making Investments.
» e-Learning Chapter 11: How to Calculate Stock Market Returns, Break Even Point and Basis Point.
» e-Learning Chapter 12: How to Calculate Compound Interest and Simple Interest.
» Currently Reading: Rule of 72, 114 and 144 of Compounding Interest formula.
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» e-Learning Chapter 15: How to become a Smart Investor or a Successful Investor.
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