A few days ago, I was having a conversation with my brother regarding the power of compounding. He’s an assistant manager at Bank of India and brilliantly understands how compounding works.
During the conversation, here’s the question that he asked-
What would you rather have:
- Rs 10 Lakhs right now or
- 1 Paise doubled every day for 31 days?
By hearing the question itself, I understood that it is a trick question.
Although Rs 10 lakhs (right now) seems a huge amount and sounds very tempting. However, getting your money doubled every day for next 31 days is even a bigger deal.
I chose option B. I was confident that the total amount would be greater than Rs10 lakhs. However, by how much, that was something that I was looking forward to.
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When I calculated the total amount that I will get on day 31 if I choose one paise option, the result turned out to be something like this.
How much is- 1 Paise doubled every day for 31 days?
- Day 1: Rs .01
- Day 2: Rs .02
- Day 3: Rs .04
- Day 4: Rs .08
- Day 5: Rs .16
- Day 6: Rs .32
- Day 7: Rs .64
- Day 8: Rs 1.28
- Day 9: Rs 2.56
- Day 10: Rs 5.12
- Day 11: Rs 10.24
- Day 12: Rs 20.48
- Day 13: Rs 40.96
- Day 14: Rs 81.92
- Day 15: Rs 163.84
- Day 16: Rs 327.68
- Day 17: Rs 655.36
- Day 18: Rs 1,310.72
- Day 19: Rs 2,621.44
- Day 20: Rs 5,242.88
- Day 21: Rs 10,485.76
- Day 22: Rs 20,971.52
- Day 23: Rs 41,943.04
- Day 24: Rs 83,386.08
- Day 25: Rs 1,67,772.16
- Day 26: Rs 3,35,544.32
- Day 27: Rs 6,71,088.64
- Day 28: Rs 13,42,177.28
- Day 29: Rs 26,84,354.56
- Day 30: Rs 53,68,709.12
- Day 31: Rs 1,07,37,418.24
If you chose option B, at the end of 31st day, you will get Rs 1.07 crore. This amount is greater than the first option by over 97 lakhs (even more than 10 times).
Till 27th day, Rs 10 lakhs as a lump-sum amount seems as a good option. However, on the 28th day, one paise option would have surpassed Rs 10 lakhs and by 31st day, it would have crossed the 8-figure mark.
Big difference between Rs 10 lakhs and 1.07 crores, right?
It might be little difficult to grasp the fact that Rs 0.01 doubled every day can turn out to be Rs 1.07 crores in 31 days.
Anyways, if you choose one paise doubled for 31 days, the result might seem low and disappointing in the initial days. However, if you keep on going, the final amount will be worth the patience. This is all because of the power of compounding.
In the end, here is an amazing quote once said by Albert Einstein regarding the power of compounding:
“Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.”
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting