Compound Growth Rate
Compound growth rate can be calculated with the following formula:
gr = Vo(1 + r)n = Vn
gr = Growth rate in percentage.
Vo = Variable for which the growth rate is needed (i.e., sales, revenue, the dividend at the end of year ‘0’).
Vn = Variable value (amount) at the end of year ‘n’.
(1 + r)n = Growth rate.
Doubling Period in Compound Growth Rate
The doubling period is the time required, to double the amount invested at a given rate of interest. For example, if you deposit Rs. 10,000 at 6 per cent interest, and it takes 12 years to double the amount. (See compound growth rate value for one rupee Table at 6 per cent till you find the closest value to 2).
The doubling period can be computed by adopting two rules, namely:
1. Rule of 72: To get doubling period 72 is divided by interest rate.
Doubling period (Dp) = 72 ¸ I
I = Interest rate.
Dp = Doubling period in years.
If you deposit Rs. 500 today at 10 per cent rate of interest, in how many years will this amount double?
Dp = 72 ¸ I = 72 ¸ 10 = 7.2 years (approx.)
2. Rule of 69: Rule of 72 may not give the exact doubling period, but the rule of 69 gives a more accurate doubling period. The
the formula to calculate the doubling period is:
Dp = 0.35 + 69 / I
Take the above problem as it is and calculate doubling period.
Dp = 0.35 + 69 / 10 = 7.25 years.