# Rule of 72 Discussion Forum Responses example

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Rule of 72 Discussion Forum Responses

Response to Question 1

Estimation of the annual growth rate, returns on investments and the time value of money have always presented a challenge to individuals and companies. Consequently, companies have invested heavily in models that do the forecasting of returns on various investments portfolios. The rule of 72 offers a very simple mechanism of calculating the time value of money, interest’s rate on loans and net returns on various investments over a specified period (BetterExplained, 2017). This rule helps an individual to quickly calculate the interest rates and the time value of money without using a calculator. The rule estimates the investment doubling time by taking the number 72; it is divided by the interest rate per period to obtain the time frame required for either offsetting the loan or doubling an investment (Laubach & Williams, 2016). The simple formula in this rule
is a useful shortcut that can assist individual to achieve milestones on their paths to financial freedom. It is recommended for individuals, businesses, and firms to adopt the rule because it is practical and easy to
decipher.

Response to Question 2

Forecasting and annual budgeting are components of investments which are fundamental to firms and individuals as well. The standard formulae for calculating compound interest is tough and involves computation using logarithmic expressions which are difficult to understand. Rule of 72 provides a simple method that can be used to ascertain whether the returns on investment are more than the cost of investment in consideration to
inflation and taxes charged on profit (McMahon, 2017). This rule will enable a company to make the right decision about certain investment portfolios; the rule relies on the initial capital to calculate the returns
from the current level of interest rates. For example, an institution may find it not worth to invest in a particular stock market because the returns when adjusted to the rate of inflation are not worth the investment
and the time value of money (The rule of 72 for compound interest, 2017). The firm will now be able to make sound investment decisions and only invest in long-term assets and bonds which can propel the firm to financial
growth.

References

BetterExplained – Math lessons for lasting insight.(2017). Betterexplained.com. Retrieved 9 February 2017, from
https://betterexplained.com/

Laubach, T., & Williams, J. C. (2016). Measuring the natural rate of interest …

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