What is Rule of 70 ? Full Definition

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rule of 70

What Is the Rule of 70?

The rule of 70 is basically an investment rule that let us know or analyse that how much time it will take for an investment or the money you have invested to get double. So, by the rule of 70 definition we get to know when we will be getting return on our investments. Though, it is normally used where we need to associate investments having different annual compound interest rates by which we get to know the time period of the growth of the investment. Therefore, the rule of 70 is also called as doubling time or doubling time rule.

Formula for the Rule of 70

The formula used for calculation of the rule of 70 is as follows:

Number of Years to Double = 70/Annual Rate of Return

It can also be written down as,

t = 70/g

Where,

  • t refers to time for the currency to get double, and
  • g refers to the constant percentage growth which is expected in the near future.

How to Calculate the Rule of 70

For calculation of the rule of 70 you firstly need to calculate the annual rate of return or the return of growth in your investment. Then afterwards, Divide 70 by the annual return rate of growth.

Derivation of rule of 70 formula:

The economy grows at constant rate g, and the gross domestic product (GDP) later in the t years will be as:

GDPt = GDP0 X (1+g)t

Now by dividing both the side by both sides by GDP0 we get,

GDPt/ GDP0 = (1+g)t

When the economy gets doubled, then the GDPt to GDP0 will also be doubled as given in the equation,

2 = (1+g)t

Now, taking log both the side, we get the equation as,

Log 2 = log(1+g)t

Approximately the value of log of 2 is 0.70. And putting the value of log 2 in the above equation we get the equation as follows;

0.7 = t X log(1+g)

And, as (1+g) = g. putting this in above equation we get

0.7 = t X g

And to bring this equation in percentage terms, we multiply and divide it by 100.

t = 0.7 / g X 100/100 = 70/g

Thus, we get the rule of 70 equation as: t = 70/g. Therefore, by the rule of 70 GDP we get the equation of the rule of 70 GDP as: t = 70/g.

Also Read: What is Fisher Effect?

Example of the Rule of 70

Example 1: At growth rate of 14{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}, the time taken for investment to get doubled as per the rule of seventy will be?

t = 70/g

t = 70/14 = 5 years

Therefore, it will take approximately 5 years for the money to get doubled up.

Example 2: At growth rate of 10{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}, the time taken for investment to get doubled as per the rule of 70 will be?

t = 70/g

t = 70/10 = 7 years

Therefore, it will take roughly or nearly about 7 years for the money to get doubled up.

Example 3: At growth rate of 5{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}, the time taken for investment to get doubled as per the rule of seventy will be?

t = 70/g

t = 70/5 = 14 years

Therefore, it will take approximately 14 years for the money to get doubled up.

Example 4: At growth rate of 2{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}, the time taken for investment to get doubled as per the rule of 70 law will be?

t = 70/g

t = 70/2 = 35 years

Therefore, it will take about 35 years for the money to get doubled up.

What is Doubling Time in rule of 70?

The Doubling Time is defined as the growth of population exponentially. It is the time the population gets doubled up. Therefore, it is also known as the rule of 70 apes or the rule of 70 population.

What is the rule of 70 quizlet?

The rule of 70 quizlet let you know the rule of seventy much more by solving some of the questions related to rule of 70 law and answering them. It is basically a website designed in a worksheet format, where you need to answer the questions related to the rule of 70, the rule of 70 economics, etc.

Conclusion:

The 70 rule let us know the time period of our investments to get doubled up. The doubling time rule of 70 use the growth rate for its calculation.

FAQ

The rule of 70 important as it let you know the estimated time period of investment to be double without investing much of your time and calculations.

The Rule of 70 may not always be prove to be accurate. As, it gives us an approximate value or roughly estimation of the time our money or investment will be doubled up. Though, for accurate calculation one can go for the detailed calculation using other related formulas as well.

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