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Tuesday, January 13, 2009

Old learning, newly relevant

A short thought for today.

I was having an intersting conversation at the weekend with an old friend about interest and inflation rates and was suprised that he did not know the "Rule of 72". I tested this on return to work on Monday and thought I would share.

The Rule of 72 is a very good way of working out how long it will take for inflation or compound interest to double or halve the value of an asset or investment. And it's REALLY simple!

Just take your assumed interest rate and divide it into 72. The result will be the number of periods (or years) it will take for your investment to double in value. Likewise if you assume an inflation rate over a period of time (heads up folks for next year!) and divide it into 72 the result will be the length of time it takes for your £1 to be worth 50p in today's money. For advanced versions and a delightfully geeky explanation of why it works click on the link

While we're on the subject another lovely old maths shortcut is the Rule of 9. Again really simple. If you have a spreadsheet which is not balancing, ie you have two columns of number which should add up to the same number and don't. Take the remainder see if it is divisible by 9.

If it is, then the likelihood is that you have made a transposition error, ie you typed "21" in one column when you meant to type "12" or, "731" when you meant "713".

Isn't maths fun?

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