Firstly, when the money increases at a simple rate of interest, rule of 100 comes into play. If the rate of simple interest is 10 % pa, the money doubles in 10 yrs. For 5 % it is 20 years and for 4 % it is 25 years.
When the money increases at a compound rate of interest,* the* *rule of 72 comes into play.* It is a rough and ready approximate rule of the thumb. If the rate of interest is 12 % compounding every year, the money doubles in 6 yrs. For 9 % it is 8 yrs, for 6 % it is 12 yrs, etc etc. I don't remember when and from whom I learnt this rule of 72 but it is a very handy thing. I have passed it on to many friends including bank employees. Many of the bank employees did not know about it and were happy to learn. Many years ago I read a news item. Someone had sued another person for a few lakh rupees. His case was that about a hundred years ago his grandfather had lent a hundred rupees to the defendant's grandfather. At the sahukara rate of interest @ 12 % pa compounding every year, the sum owed had gone into lakhs. I then remembered the rule of 72 !! When I joined the navy, my father advised me to join DSOP fund immediately and save as much as I cmfortably could. He said that within a few years, the annual interest would become more than my monthly contribution; after that it would keep increasing even more. His advice was based on his experience as a govt servant. It stood me in very good stead. This is something we all can pass to our chilren and grandchildren. Now for an old old story. One day a learned Brahmin came to Raja's court and told him that he had set up a game which he would like to show him. The game was demonstrated and the raja was very happy to see the game -- the game of chess. He wanted to give the Brahmin a reward but he refused. He said it was his pleasure and hobby and the raja was happy, that itself was his reward. When the raja persisted, the brahmin said that he wanted one grain of wheat or rice etc placed on the first square, two on second square, four on third, and keep doubling it till all 64 squares were filled. The raja was livid. He said ' If you were not a learned man, you would have been beheaded by now'. The learned man just smiled and said ' O Rajan, fill up all 64 squares and feel free to behead me '. The way he smiled, the raja thought there was something he may have missed out. So, he ordered his courtiers to go ahead with the task. First few squares were ok. Then they had to calculate the number of grains, followed by the weight of grains. After some time they came to the conclusion that the job just could not be done. The grains required to cover all 64 squares were so many that they were just not available in the whole world. The raja stood up, folded his hands and said ' Forgive me, O wise one, I have behaved like an arrogant fool'. The above story illustrates the power of 100 % pa compound interest. Let us check it out. I have just switched on my standars 8 digit calculator. 8 digits give me one less than 100 millions. I press 2 and twice I press x. Now we are ready. Press the = button and 2 changes to 4, this figure is for 3rd square. Keep pressing = and the figure keeps doubling up. When we reach the the 28th square, the figures are out of the calculato's range !!!! -- With best wishes S Chander -- You received this message because you are subscribed to the Google Groups "Thatha_Patty" group. To unsubscribe from this group and stop receiving emails from it, send an email to [email protected]. For more options, visit https://groups.google.com/d/optout.
