mickeyd
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
For folks that follow Milevsky, this is a pretty good look at a brief history of the cash flows.
Lenny had a problem. A close friend of his invested some money a few years prior, in a local Italian bank — in Pisa actually — that had promised him steady interest of 4 percent per month. Rather than sitting by and letting the money rapidly grow and compound over time, Lenny’s friend started withdrawing large and irregular sums of money from the account every few months. These sums were soon exceeding the interest he was earning and the whole process was eating heavily into his capital. To make a long story short, Lenny was approached by this friend and asked how long the money would last, if he kept up these withdrawals. Reasonable question, no?
Now, if I were Lenny, I would have pulled out my handy HP business calculator, entered the cash flows, pushed the relevant buttons and quickly obtained the answer. In fact, with any calculator these sorts of questions can be answered quite easily using the technique known as “present value analysis” — which is something all business school professors teach their finance students on the first day of class.
The Debt Retirees Owe to FibonacciTo be honest, Lenny didn’t have a calculator at all because they hadn’t been invented yet. You see, Lenny was asked this question over 800 years ago, in the early part of the 13th century. But to answer it — which he certainly did — he invented a technique that today is called present value analysis. Yes. The one I mentioned we teach business students.
You might have heard of Lenny by his more formal name: Leonardo Pisano filius (“family,” in Latin) Bonacci, a.k.a. Fibonacci (1170-1250), probably the most famous mathematician of the Middle Ages.
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