17.6.12

The story of the King and the Sage & The power of compounding.

The story of the king and sage.
King-and-sage-story-moneyjumps.com
Once Upon a time there lived a King who was  generous and kind to the poor and needy. He always cared to respect and reward scholars for their knowledge and wisdom.
Hearing about the generosity of the King a poor Sage came to meet him at his palace.
The sage presented a poem which he has written in front of King. Impressed by the quality of the literary work, the king asked the sage to name the reward he wanted.
“Are you sure that I can ask anything?” the sage asked.
“Sure. you may ask anything you like.” King replied.
Then the sage pointed to the royal chess board and asked " Your majesty,  In that 64 box chess-board-power-of-compounding-moneyjumps.comboard, in the  first box kindly put 1 number of rice grain , in the second double of 1 ,i.e. 2 , and in the 3rd box double of 2, i.e. 4 and so on utill we reach 64 boxes”. “I want that much grains only as your reward”
“Are you sure? You want only grains not gold or diamonds?”. King asked.
“I am sure , your majesty,” The sage replied.
Royal servants started putting grains on the chess board as per sage’s requirement, as per the calculation below.
Box number
Number of grains of rice
Box number
Number of grains of rice
Box number
Number of grains of rice
1 1 11 1,024 21 1,048,576
2 2 12 2,048 22 2,097,152
3 4 13 4,096 23 4,194,304
4 8 14 8,192 24 8,388,608
5 16 15 16,384 25 16,777,216
6 32 16 32,768 26 33,554,432
7 64 17 65,536 27 67,108,864
8 128 18 131,072 28 134,217,728
9 256 19 262,144 29 268,435,456
10 512 20 524,288 30 536,870,912
You can see that  at 30th column they had to put 536 million grains of rice. By the time they reached the last box the King had to give the kingdom to the sage to fulfill his word.
The king failed to see and understand the ploy of the sage , who  by doubling the value in each box was  cleverly putting compounding effect in to his advantage.
What is compounding
Practically Compounding happens when the interest gets added to the principal amount and from then on will earn the interest for the total amount.
The addition of the interest earned to the principal is called compounding.
Please consider the following table.
Year  Amount Rate of interest Total
1 1000 12 1120
2 1120 12 1254
3 1254 12 1405
4 1405 12 1574
5 1574 12 1762
6 1762 12 1974
7 1974 12 2211
An amount of 1000/- is the initial investment ( Principal) which earns 12% interest every year. At the end of 1st year  the interest  of 120/- gets added to the initial investment and total value is 1120/-.
At the end of second year the interest is calculated for 1120/- not 1000/- , which is 134/-.
Like this money gets compounded year on year and at the end of 7th year the total value will be 2211/-. i.e. the income of 1211/- from the  initial investment of 1000/-.
This is the power of compounding.
The power of compounding is the secret behind great returns from long term investments.
If you have the patience and discipline to save and invest small amounts when you are young, the power of compounding will ensure amazing returns in the future.
Young professionals should start investing , even if it is a small amount, from the first salary.
So that compounding can help him to make a real fortune by the time he retire.
So don’t wait anymore… Start investing today…



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