Rule of 70

What is Rule of 70?

The term “Rule of 70 or also known as doubling time,” refers to the total time required to double the quantity or value (we have taken money). It simply means that if all other factors remain constant, then in how much time it will take to double our money or investments or profit. For instance, suppose if we have invested $100 at a growth rate of 5% per annum, then in how much time our money invested got double, i.e., becomes $200. The above-said method is also known as doubling time or in simple time required to double the amount.

Rule of 70 Formula

In this article, we will focus on the formula for calculating the Doubling timeDoubling TimeThe doubling time formula measures the time taken by an investment to become twice its present value. Doubling Time = ln 2 / [n * ln (1 + r/n)]; where r is the rate of return and n is the number of compounding period per year.read more using the rule of 70, which is expressed as the division of 70 by the % of growth rate. Mathematically, it is represented as:

Doubling Time = 70 / % of Growth Rate

For the calculation of growth rateCalculation Of Growth RateThe Growth rate formula is used to calculate the annual growth of the company for a particular period. It is computed by subtracting the prior value from the current value and dividing the result by the prior value.read more, we need to apply the following formula:

Growth Rate (per annum) = (Amount Received on maturity subtracted by Amount Invested) divided by Amount invested thereafter multiplied by 365 days / 12 months divided by period of investment. Mathematically it can be represented as:

Growth Rate = (Amount Received – Amount Invested) / Amount Invested Multiplied by 365 Days or 12 Months / Period of Investment * 100 (as always in %)
Rule-of-70-Formula

You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Rule of 70 (wallstreetmojo.com)

Explanation

The equation for Rule of 70 can be derived by using the following steps:

Step 1: Firstly, determine the number of investments and the period of investment.

Step 2: Then, calculate the return on investment, which we got by subtracting the amount invested from the amount received on maturity called “Return.”

Step 3: Then, determine the period of investment in which we got returns or capital appreciations, i.e., the period from the date of investment to maturity called “T.”

Step 4: By using the above-mentioned formula for calculating the growth rate, calculate the growth rate of the investment called “G.”

Step 5: Finally, by using the above-mentioned formula, we can easily calculate Doubling Time. Doubling time, as calculated in step 4.

Doubling Time = 70 / by % of Growth Rate (g)

Calculate Doubling Time using Rule of 70

Let’s see some simple to advanced examples to understand it better.

You can download this Rule of 70 Formula Excel Template here – Rule of 70 Formula Excel Template

Example #1

Suppose Mr. A has invested $100000 on the first day of the month in equity-oriented funds for a period of 3 months. At the time of maturity, Mr. A has received a sum of $150000. Now Mr. A wants to know the doubling time assuming all other factors in which business operates remain constant.

Solution:

Use the given data for the calculation of the rule of 70.

Rule of 70 Formula Example 1

Then for calculation of growth rate, the following steps are to be taken:

Rule of 70 Formula Example 1.1.0

Amount Earned on Investments = Amount Received on Maturity – Amount Invested

  • Amount Earned on Investments = $(150000-100000) = $50000.
  • Growth Rate = ((50000/100000) * (12/3) * 100)
  • Growth Rate = 200% per annum

Now, Calculation of Doubling Time can be done as follows,

calculation of doubling time Example 1.2
  • Doubling Time = 70 / 200

Doubling Time will be –

Example 1.3
  • Doubling Time = 0.35 years.

Example #2

Suppose Mr. A has invested $100000 on the first day of the month in equity-oriented funds and has earned a dividend on these investments amounting to $5000. He has also invested in 10% debentures of PQR Inc., amounting to $500000. The period of both investments is 6 months. At the time of maturity, Mr. A has received a sum of $150000 from the equity-oriented fund and $520000 from 10% debentures. Now Mr. A wants to know the doubling time assuming all other factors in which business operates remain constant, and PQR Inc. pays interest on a half-yearly basis.

Solution:

Use the given data for the calculation of the rule of 70.

Rule of 70 Formula Example 2

Amount Earned on Investments = Amount Received on Maturity – Amount Invested

  • On Equity fund = $(150000-100000) = $50000.
  • On 10% Debentures = $(520000-500000) = $20000

Other incomes earned from investments:

Growth rate (G) can be calculated by using the above formula:

Rule of 70 Formula Example 2.1.0
  • Growth Rate = $(100000/600000) * (12/6)*100
  • Growing Rate = 33.33% per annum

Calculation of Doubling Time can be done as follows,

calculation of doubling time Example 2.2
  • Doubling Time = 70 / 33.33

Doubling Time will be –

Example 2.3
  • Doubling Time = 2.10 years.

Rule of 70 Calculator

You can use this rule of 70 calculators.

% of Growth Rate
Doubling Time
 

Doubling Time = 70 / % of Growth Rate
70 / 0 = 0

Relevance and Uses

  • By applying the rule of 70 or the Doubling time concept, a short term investor or anyone maybe got to know the time required to double the money invested, assuming all other factors remain constant such as growth rate, etc.
  • It helps to determine the duration of investments. In other words, it helps investors to get the rough idea of “In how much time an investor got its money doubled” and for how long they have to keep investing the money.

Recommended Articles

This has been a guide to the rule of 70. Here we discuss how to calculate doubling time using its rule of 70 formula along with examples, a calculator, and a downloadable excel template. You can learn more about financial analysis from the following articles –

  • 16 Courses
  • 15+ Projects
  • 90+ Hours
  • Full Lifetime Access
  • Certificate of Completion
LEARN MORE >>
Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *