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12-30-2005, 07:04 AM
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#1
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Recycles dryer sheets
Join Date: Sep 2004
Posts: 330
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FV calculation
This is a question for the finance majors. If my cost of living is 4k per month currently, what would the figure be assuming 3% annual inflation in 10 years at my time of "retirement". I've looked for the formula but can't find it.
Does anyone, (perhaps brewer12345) have the formula/answer.
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12-30-2005, 07:14 AM
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#3
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Thinks s/he gets paid by the post
Join Date: Jun 2005
Posts: 4,005
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Re: FV calculation
4000 x 1.03^10
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12-30-2005, 07:18 AM
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#4
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Recycles dryer sheets
Join Date: Aug 2005
Posts: 335
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Re: FV calculation
3% inflation means next years costs are 1.03 times this year's costs. *The year after, 1.03 times again; that is, 1.03*1.03=1.032=1.0609 times this year's costs. *Et cetera. *After 10 years, 1.0310=1.34392. *Multiply this times $4000 to get $5375.
However, don't apply such formulas mechanically. *Some things go up more than others (medical care, for example), so if these things are a big part of your life now, they will be even bigger in the future. *And if you have a fixed-rate mortgage, then your payments will not increase in dollar terms.
In other words, understand what you are calculating, and understand the limits of accuracy that you can expect.
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12-30-2005, 09:24 PM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 14,183
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Re: FV calculation
If you're using monthly numbers, you'd have to divide the 3% by 12, and multiply the years (10) by 12...
__________________
Have Funds, Will Retire
...not doing anything of true substance...
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12-30-2005, 10:59 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,455
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Re: FV calculation
4000*(1+3%/12)^10*12 or 4000*(1+.0025)^120 = 5397.414189
In Excel: =FV(3%/12,10*12,0,-4000)
__________________
May we live in peace and harmony and be free from all human sufferings.
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12-31-2005, 06:16 AM
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#7
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Full time employment: Posting here.
Join Date: Oct 2003
Posts: 961
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Re: FV calculation
Quote:
Originally Posted by Have Funds, Will Retire
If you're using monthly numbers, you'd have to divide the 3% by 12, and multiply the years (10) by 12...
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Quote:
4000*(1+3%/12)^10*12 or 4000*(1+.0025)^120 = 5397.414189
In Excel: =FV(3%/12,10*12,0,-4000)
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Not to be a stickler for interest theory .... but to go from a yearly rate to a monthly rate, you can't just divide by 12, just like you can't multiply by 12 to go the other way. You have to take "1 + yr" to the power of "1/12", and then minus 1. So for 3%:
monthly rate = (1+.03)^(1/12) - 1 = .2466%
Though the rates are almost equaly, especially if you round to two decimal places. And the difference in the above example is only $21.75.
- Alec
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