Corporate Finance Business School Rule of 70
The General Principle of Exponential Money Growth. In finance - the rule of 72, the rule of 70 and the rule of 69.3 all refer to essentially the same method for
estimating doubling times for exponential growth or halving times for exponential decay. If you divide the number
given by the expected growth rate, expressed as a percentage, the answer is approximately the number of periods to
double the original quantity. For instance, if you were to invest $100 at 9% per annum, then your investment would be
worth $200 after 8.0432 years, using an exact calculation. The rule of 72 gives 72/9 = 8 years, which is close to the
exact answer.
You can manufacture exceptional results with some solid research, and then deploying that knowledge. There’s a lot more to Compounding
than the math. Lets say you calculate your retirement fund of $3000 will become $22,836.76 in 30 years at a
guaranteed 7% interest rate. What if you could find some other vehicle to grow your money?
If you apply the instructions you have learned to prospecting for clients, you can reach thousands of people! Thousands of
people helping you increase your net-income, knowing that others will help them do the same.
The arithmetic proves The General Principle of Exponential Money Growth, Simple Stuff That Works.
In mathematics, a quantity that grows exponentially, or geometrically, is one that grows at a rate
proportional to its size. There are several big name Internet marketers who have taken a tiny investment of $10, $20 or $40 and make
it explode into thousands of dollars in sales.
Is it too good to be true?
Such growth is said to follow an exponential law (also see Malthusian growth model*).
This implies that for any exponentially growing quantity, the larger the quantity gets, the faster it grows. But
it also implies that the relationship between the size of the dependent variable and its rate of growth is governed
by a strict law, of the simplest kind: direct proportion. It is proved in calculus that this law requires that the
quantity is given by the exponential function, if we use the correct time scale.
The general principle behind exponential growth is that the larger a number gets, the faster it grows. Any
exponentially growing number will eventually grow larger than any other number which grows at only a constant rate
for the same amount of time (and will also grow larger than any function which grows only subexponentially).
This is demonstrated by the classic riddle in which a child is offered two choices for an increasing weekly allowance:
the first option begins at 1 cent and doubles each week, while
the second option begins at $1 and increases
by $1 each week. Although the second option, growing at a constant rate of $1/week, pays more in the short run, the first
option eventually grows much larger.
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- Week: Option 1: Option 2:
- [ 0 ] [ 1c ] [ $1 ]
- [ 1 ] [ 2c ] [ $2 ]
- [ 2 ] [ 4c ] [ $3 ]
- [ 3 ] [ 8c ] [ $4 ]
- [ 4 ] [ 16c ] [ $5 ]
- [ 5 ] [ 32c ] [ $6 ]
- [ 6 ] [ 64c ] [ $7 ]
- [ 7 ] [ $1.28 ] [ $8 ]
- [ 8 ] [ $2.56 ] [ $9 ]
- [ 9 ] [ $5.12 ] [ $10 ]
- [ 10 ] [ $10.24 ] [ $11 ]
- [ 11 ] [ $20.48 ] [ $12 ]
- [ 12 ] [ $40.96 ] [ $13 ]
- [ 13 ] [ $81.92 ] [ $14 ]
- [ 14 ] [ $163.84 ] [ $15 ]
- [ 15 ] [ $327.68 ] [ $16 ]
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Seed Money for your Money Tree
Exponentially growing your money is simply turning a few dollars into thousands. We have heard that it takes money to grow money.
Well that's true, however, almost anyone can get a little "seed" money and with the right knowledge, grow that seed into a high yield money tree.
Real money is not made by a one time selling of a product or service. In order to grow your seed money into a fruit producing business, you
will need to have recurring sales to a good amount of loyal customers. Also known as repeat business.
Free Money, only cost you $10
What if you bought a pack of peanut seed for $10 and planted them in fertial ground? You then watered and cared for the plants until they matured.
From the $10 sack of peanuts, you could harvest a bushel of peanuts; exponential growth. Likewise, if you could put $40 into a company that yield Thousands, that's
like Free money for only $40.
All legitimate business activities create wealth in some way or contribute to the creation of wealth. When you create a
product that is worth more than what it cost to produce, you have created potential wealth. When you perform a service
which is worth more than it cost to provide, then you have created potential wealth.
Example: When you have taken ingredients worth a dollar, and used them to create a product worth two dollars, you've
created a dollar's worth of new potential wealth. Exponentially growing money** has no limit. The worth of your product
or service can span many generations and countries.
*Malthusian Growth Model
In 1798 the Englishman Thomas R. Malthus posited a mathematical model of population growth. He model, though simple, has become a
basis for most future modeling of biological populations. His essay, "An Essay on the Principle of Population," contains an excellent
discussion of the caveats of mathematical modeling and should be required reading for all serious students of the discipline.
According to Malthus, if a population of 100 individuals increased to a population 135 individuals over the course of, say, five
years, then a population of 1000 individuals would increase to 1350 individuals over the same period of time.
The assumptions about saving rate, depreciation, and so forth imply growth in labor productivity of 2.5 percent per year. Balanced
growth path is a path along which capital and output grow at the same rate.
**Exponentially growing money
A crucial difference between money growth and population growth, however, is that money can increase without limits while
population can't. The population of any living creatures is constrained by the availability of food, water, land, shelter and other
important resources.
Best regards,
Sherwood
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