What is the Rule of 72 used for in finance?

The Rule of 72 is a straightforward formula used in finance to estimate the amount of time it will take for an investment to double in value based on a fixed annual rate of return. By dividing 72 by the expected annual rate of return (expressed as a percentage), investors can quickly determine approximately how many years it will take for their investment to grow to twice its original amount.

For example, if an investment is expected to grow at an annual return of 6%, dividing 72 by 6 gives 12 years to double the investment. This rule provides a simple and useful approximation that allows investors to make quick calculations without needing complex financial formulas or tools.

While other options may relate to financial calculations, they do not pertain to the Rule of 72 directly. The rule specifically addresses the time it takes to double an investment rather than growth rates, depreciation, or loan interest calculations. It is primarily a tool for understanding the power of compound interest and investment growth over time.