Friday, April 5, 2013

POWER OF COMPOUNDING

Albert Einstein called "Compounding" as the 8th Wonder of the World.
Let us find out why with another example.


power of compounding


There are 'n' number of stories on the Power of Compounding. But the one which I like the most is this...

You may know the story, but still read it because the twist at the end is not what you expected.
3 persons, Mr.A, Mr.B and Mr.C joined a company. They all were given the option of either taking Rs.10000/- daily for next 30 days or taking 1paisa for Day 1, 2 paise for day 2, 4 paisa for Day 3, 8 paisa for Day 4....wherein double the amount what you got previous day and henceforth for the next 30 days.
Mr.A decided to take Rs.10000/- daily.
Mr.B and Mr.C decided to take 1 paisa and the double the amount every day.
At the end of 20th (twentieth) day, Mr.B badly needed urgent cash and took away Rs.10000/- from his accumulated corpus.
At the end of 30 days,
Mr.A's total amouted to Rs.3 lakhs (Rs.10000 * 30)
Mr.B who took Rs.10000/- on 20th, was however better than Mr.A and had Rs.5 Lakhs at the end of 30 days.
Mr.C who did not withdraw anything, had at end of 30 days, surprise, surprise, left with Rs.1 Crore!!!
Just look at the difference between Mr.B and Mr.C. Both took the same salary of doubling every day but just because Mr.B took a paltry Rs.10000/- only on the 20th, he was left with Rs.95 Lakhs lesser than Mr.C.
Well, then, that is the power of compounding!!!

Also visit http://equityadvise.blogspot.com

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