Rule of 72 for compound interest - By tecmath
Transcript
| 00:0-1 | Good day . Welcome to take Math Channel . What | |
| 00:02 | we're gonna be having a look at in this video | |
| 00:03 | is a way of really quickly and easily working at | |
| 00:07 | how long it takes an amount to double uh whether | |
| 00:10 | it be a population or money you put in the | |
| 00:13 | bank , how long it would take double at a | |
| 00:15 | given interest rate that's being compounded . Okay , It's | |
| 00:19 | not that bad . Okay . The way we , | |
| 00:21 | so pretty much what we're looking at is how long | |
| 00:23 | it would take something to say . Yeah , to | |
| 00:25 | become twice that amount at a given growth rate . | |
| 00:31 | Okay , now the way that we do this is | |
| 00:33 | as follows , we use this thing called the Rule | |
| 00:37 | of 72 . Now , the rule of 72 has | |
| 00:41 | been around for a fair while and it works as | |
| 00:44 | follows the time taken . Okay , so this time | |
| 00:47 | taken , which is in years equals 72 divided by | |
| 00:56 | The growth rate . Okay , so this is the | |
| 00:58 | growth rate , whether this be an interest rate or | |
| 01:00 | whether , you know , or this be say , | |
| 01:02 | you know , the population is growing at 5% or | |
| 01:05 | something like this is what I mean by this growth | |
| 01:07 | rate . So That is simply , we can say | |
| 01:10 | its most simple , we can do the following to | |
| 01:12 | say , I wanted to know at 10% , how | |
| 01:16 | long it would take To say our interest rate is | |
| 01:19 | 10% So what we do is we would get 72 | |
| 01:24 | and we will divide by 10 , so this would | |
| 01:26 | take 7.2 years . So we had say something at | |
| 01:34 | 5% . Okay , so what we do is we | |
| 01:40 | go 72 divided by five , We get 14.4 years | |
| 01:48 | . So we put something at uh 3% . Okay | |
| 01:56 | , 72 divided by three is going to be 24 | |
| 02:03 | years . So we did something at 1% . As | |
| 02:09 | you'll probably see here 72 divided by one . It | |
| 02:12 | would take you 72 years now . This is an | |
| 02:16 | approximation . This is not exact exact exact , but | |
| 02:20 | it's fairly , it's not too bad at all . | |
| 02:22 | And funnily enough , what you can really start to | |
| 02:25 | notice where this is , how much difference a percentage | |
| 02:28 | point can make in terms of growth . Okay , | |
| 02:31 | so we did this at 2% , we could say | |
| 02:33 | it 2% growth . It would take 36 years . | |
| 02:35 | That's a 12-year difference in the time . It takes | |
| 02:38 | something to double between 2% and 3% . Okay , | |
| 02:42 | if we say 4% where we would be at 18 | |
| 02:45 | years . Okay , that's still a fair degree of | |
| 02:48 | difference between , you know , either side there , | |
| 02:51 | so that's a really , really handy nifty little rule | |
| 02:54 | there . Hopefully you like it . I find it | |
| 02:56 | kind handy actually . Um It's just one of those | |
| 02:58 | things that's really , really good to know . It | |
| 03:00 | doesn't it's not that hard to remember or or even | |
| 03:03 | use anyway . Hopefully like that video . So next | |
| 03:06 | time , Bye |
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