## 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.

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.

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

- 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

**WARNING:**- 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.

**REMEEMBER:**to convert a percent to a decimal number divide by 100**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 SSRuleOf72Save 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:

2 5,000 6.5%

3 450 2.25%

4 1,750 3.75%

5 200,000 10%

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