2.4.5.g1 © take charge today – march 2014 – rule of 72– slide 1 funded by a grant from take...
TRANSCRIPT
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© Take Charge Today – March 2014 – Rule of 72– Slide 1Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
*The Rule of 72
The most important and
simple rule to financial
success.
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© Take Charge Today – March 2014 – Rule of 72– Slide 2Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
*Albert Einstein
How are Albert Einstein and the Rule of 72 related?
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© Take Charge Today – March 2014 – Rule of 72– Slide 3Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
T=P(I+I/N)YN
Credited for discovering the mathematical equation for
compounding interest
© Take Charge Today – March 2014 – Rule of 72– Slide 4Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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* The Rule of 72
© Take Charge Today – March 2014 – Rule of 72– Slide 5Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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*Things to know about the Rule of 72
© Take Charge Today – March 2014 – Rule of 72– Slide 6Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Doug’s Certificate of Deposit
Invested $2,500
Interest Rate is 6.5%
72 = 11 years to double investment
6.5%
Doug invested $2,500 into a Certificate of Deposit earning a 6.5% interest rate. How
long will it take Doug’s investment to double?
© Take Charge Today – March 2014 – Rule of 72– Slide 7Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Another ExampleThe average stock market return
since 1926 has been 11%
Therefore, every 6.5 years an individual’s investment in the stock market has doubled
72 = 6.5 years to double investment
11%
© Take Charge Today – March 2014 – Rule of 72– Slide 8Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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*Can the Rule be applied to debt?
*It can show how fast a debt can double
*It can show the impact of interest rates on debt
YES
© Take Charge Today – March 2014 – Rule of 72– Slide 9Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Jessica’s Credit Card Debt
$2,200 balance on credit card
18% interest rate
72 = 4 years to double debt
18%
Jessica has a $2,200 balance on her credit card with an 18% interest rate. If Jessica chooses to not make any payments and does not receive late charges, how long
will it take for her balance to double?
© Take Charge Today – March 2014 – Rule of 72– Slide 10Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Another Example
$6,000 balance on credit card
22% interest rate
72 = 3.3 years to double debt
22%
© Take Charge Today – March 2014 – Rule of 72– Slide 11Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Jacob’s Car
$5,000 to invest
Wants investment to double in 4 years
72 = 18% interest rate
4 years
Jacob currently has $5,000 to invest in a car after graduation in 4 years. What interest
rate is required for him to double his investment?
© Take Charge Today – March 2014 – Rule of 72– Slide 12Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Another Example
$3,000 to invest
Wants investment to double in 10 years
72 = 7.2% interest rate
10 years
© Take Charge Today – March 2014 – Rule of 72– Slide 13Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Rhonda’s Treasury Note
72 = 9.6 years
7.5% to double investment
Age Investment
22 $2,500
31.6 $5,000
41.2 $10,000
50.8 $20,000
60.4 $40,000
70 $80,000
Rhonda is 22 years old and would like to invest $2,500 into a U.S. Treasury Note earning 7.5%
interest. How many times will Rhonda’s investment double before she withdraws it at age 70?
© Take Charge Today – March 2014 – Rule of 72– Slide 14Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Another Example$500 invested at age 18
7% interest
How many times will investment double before age 65?
72 =10.2 years
7% to double investment
Age Investment
18 $500
28.2 $1,000
38.4 $2,000
48.6 $4,000
58.8 $8,000
69 $16,000
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© Take Charge Today – March 2014 – Rule of 72– Slide 15Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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© Take Charge Today – March 2014 – Rule of 72– Slide 16Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
*Any questions?