What's the Rule of 72?
A core Private Equity interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
A mental-math shortcut: years to double = 72 / annual return %. At 24% IRR, money doubles in 3 years (72/24). Useful in PE to sanity-check return targets: a 3x MOIC over 5 years implies ~25% IRR. Quick way to convert between MOIC and IRR without a calculator in interviews.
WHAT INTERVIEWERS LISTEN FOR
- ✓Years to double = 72 / return %
- ✓Quick MOIC to IRR conversion
- ✓Sanity-check return targets
- ✓Mental math shortcut
COMMON MISTAKES
- ✗Using 70 instead of 72
- ✗Confusing with continuous compounding
- ✗Applying to negative returns
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