Financial Literacy
When you deposit money in the bank (or invest in an interest bearing investment vehicle), in essence you are lending the bank your money.
Rule of 72
The rule of 72 is a method of estimating the number of years that are required to double the amount of and investment at a given compound interest rate.
Compounding Interest is re-investing the interest back into the investment and receiving interest on the re-invested interest amounts in the following time periods (years).
Example:
How long will is required to double an investment of $1000 invested at 4% compounded annually?
72 ÷ 4 = 18 years
It will take about 18 years to double the investment at an annual compound interest rate of 4%.
Rule of 72
The rule of 72 is a method of estimating the number of years that are required to double the amount of and investment at a given compound interest rate.
Compounding Interest is re-investing the interest back into the investment and receiving interest on the re-invested interest amounts in the following time periods (years).
Example:
How long will is required to double an investment of $1000 invested at 4% compounded annually?
72 ÷ 4 = 18 years
It will take about 18 years to double the investment at an annual compound interest rate of 4%.
SSRuleOf72
Create a spreadsheet that demonstrates the rule of 72.
You can follow the above layout
Formulas:
Save as SSRuleOf72
- all shaded cells are formulas
- if you change the Amount of Investment or the Yearly Interest Rate the entire spreadsheet will change
- you will need to copy the formulas down for the correct Doubling Time periods
- you do not need to shade the cells
- You will have a total of 18 End of Year numbers
- The rule of 72 requires the interest rate to be expressed as a percent i.e. 4 for 4%
- The interest Calculations requires the interest rate to be expressed as a decimal value. i.e. 0.04 for 4% your formulas must be adjusted accordingly.
Formulas:
- Doubling Time: 72 divided by cell B4
- Counting up by years by 1:
in Cell E4
The formula that will increase the End of Year by 1 is
=E3 +1 <Enter>
Copy this formula down - Interest Earned: is the value of the investment times the interest rate
year one calculations are different from year 2 and beyond
you will need to use absolute cell addressing for year 2 and beyond in order to copy the formula down
(remember you can press <F4> to place the $-signs in the cell address)
Save as SSRuleOf72
SSRuleOf72 continued .. add to a Spreadsheet book
Spreadsheet programs, including Google Sheets, allow for one file to hold multiple sheets.
Add sheet to your file for each of the following cases:
Case Investment Interest Rate
1 $ 10,000 7.2%
2 5,000 6.5%
3 450 2.25%
4 1,750 3.75%
5 200,000 10%
Note: Copy and Pasting also works between sheets
Add sheet to your file for each of the following cases:
Case Investment Interest Rate
1 $ 10,000 7.2%
2 5,000 6.5%
3 450 2.25%
4 1,750 3.75%
5 200,000 10%
Note: Copy and Pasting also works between sheets
- to add an new sheet, press the big + icon on the bottom LHS of the window
- If you set your sheets up correctly, only the interest rates and investment amounts need to be changed on your sheet
- You will need to adjust the number of rows required to match the doubling time
- some formulas will required absolute cell addressing
Right click on the sheet tab and a sheet can be:
- duplicated
- renamed
- deleted
- ... and more