Dipankar Jakharia
Will you board a taxi, which promises to complete a journey from Kohima to Dimapur in 30 minutes? You will definitely think these promises are futile or realize that if it travels at the promised speed it is destined for a mishap. The safety mechanism in you will activate certain brain cells and tell you about the impending danger. In other words your six sense will say: Beware!
How did you calculate the danger? In this case you know to reach Dimapur it takes a good two hours on a public transport. So your past knowledge will help you in making the judgement.
Any number without correlation with object or idea or ideas like speed, time, mass, currency, etc is essentially meaningless. But when we say 1kg of rice, half a day or 60 km per hour, it brings out the meaning to us. Then again if we say 10,00,000 miligram of rice, 43200 seconds and 54 feet per second it becomes difficult for us to quantify the numbers, but meant the same 1 kg of rice, half a day, and 60 km per hour.
The accepted calculation of return on investment is Compounded Annual Growth Rate or in short CAGR. Since it is a calculation of an exponential growth, 24% a year does not meant 2% a month.
When bank advertise fix deposit rates in the newspaper it describes its return compounded annually. Not monthly, not weekly or not daily. When you go for a car loan the interest charged by the bank is also calculated in compounding per year. It helps us to correlate the figures to take informed decisions.
What you should understand the base of the calculation is not in percentage but time, and it is per annum (365 days). It will be surprising; to learn the following table of converting monthly interest to a yearly is not by simply multiplying by twelve.
In the table you will see an increase in monthly interest exponentially increases the yearly corresponding figure. If one is promising a return of 20% a month which seems quite possible in the beginning is a suicidal 791% per annum.
The current wave of Chit Funds is nothing but, old wine in new bottle, of broken promises, greed, and heart breaks. Known as Ponzi scam in the west, it is a scam which is hundreds of years old. The only way to fight against it is through awareness and vigilance. The beginning can be, breaking down their big promises to meaningful one and to understand it is simply unachievable.
Next time when you are lured to a “get rich quick scheme”, convert the promises to meaningful figures. There are many website on the internet to help you with the calculations. Don’t fall into promises which basically plays with your aptitude with numbers.
Promises are made on assumptions and intentions. Sometimes assumptions are measured inaccurately. And the problem is when subsequent promises are made based on the first promise, intentions are not wrong but assumptions are. For a measurable promise, assumption has to understandable and uniform. Only with measurable promises there will be less heartbreaks.
