What does the rule of 72 estimate?

The rule of 72 is a straightforward mathematical formula used to estimate the number of years it will take for an investment to double in value, given a fixed annual rate of return. By dividing 72 by the annual interest rate (expressed as a percentage), investors can quickly gauge how long it will take for their investment to grow to twice its original amount. For example, if the interest rate is 6%, dividing 72 by 6 gives an estimate of 12 years for the investment to double. This rule is particularly useful because it allows individuals to make quick mental calculations without needing complex math or financial calculators.

The other options do not align with the purpose of the rule of 72. It is not used to determine the annual interest rate on a loan, required monthly savings for retirement, or the total fees associated with an investment, which require different financial calculations and considerations.