Future Business Leaders of America (FBLA) Personal Finance Practice Test

The rule of 72 is a simple formula used to estimate the time it takes for an investment to double in value at a fixed annual rate of return. By dividing the number 72 by the annual interest rate (expressed as a percentage), you can quickly determine the number of years it will take for your investment to grow to twice its original amount. This mental math shortcut provides a practical way for investors to gauge the power of compound interest over time.

For instance, if an investment is expected to earn an 8% return annually, dividing 72 by 8 yields 9 years, suggesting that the investment will double in approximately nine years. This rule is particularly useful for investors when making decisions about savings and investment strategies, as it succinctly illustrates the impact of different interest rates on investment growth without sophisticated calculations.