What is the Rule of 72 used for in finance?

The Rule of 72 is a simplified formula used in finance to estimate the number of years required to double an investment at a given annual rate of return. By dividing 72 by the expected annual return rate, investors can quickly gauge how long it will take for their money to grow. For instance, if an investment earns an 8% return, it will take approximately 9 years to double (72 divided by 8 equals 9). This rule offers a practical way to visualize the effects of compound interest without the complexity of more detailed financial calculations.

While the other options mention important financial concepts, they do not apply to the Rule of 72. Calculating net present value involves discounting future cash flows back to the present value, which is not related to the concept of duration for doubling investments. Assessing loan interest rates is focused on understanding costs associated with borrowing, and determining capital gains tax relates to profits made from asset sales, none of which pertain to estimating the timeframe for an investment to double.