#arithmetic

2 public notes

A percentage loss needs a larger percentage recovery

After an asset loses value, the percentage gain needed to recover is calculated from a smaller base. A fall from ₹100 to ₹80 is a 20% loss, but returning from ₹80 to ₹100 requires a 25% gain. Equal percentage falls and rises do not cancel because their starting amounts differ.

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compounding

Compounding means the previous gain joins the calculation

Compounding happens when a return becomes part of the amount used to calculate the next return. At a fixed 10% yearly rate, ₹1,000 becomes ₹1,100 after one year and ₹1,210 after two. The second year's ₹110 includes ₹10 earned on the first year's gain.

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