Need help with financial calculation - future value & discounted present value

[patrickj]

OK, its been a while since my Finance classes. I thought that I could figure this out, but I can only get half-way there. I am using a HP 12-C calculator.

I have $9800.00 in an account. The interest rate (i) is 15% and (n) is 30 years. I can figure the future value to be ~$649,000.00 My problem is discounting that back to todays dollars. I can't seem to find the correct formula to do this. I am assuming a 2.5% inflation rate for the calculation, but I don't know _how_ to do the calculation.

Could someone calculate the discounted present value and also provide me the formula so that I can determine this myself on my HP 12-C?

Thanks in advance,

Patrick

 

[Woodie]

I don't have my manual at work. but anway, if I recall correctly, to work back to current dollars from future dollars, all you have to do is divide the FutureAmount by ((1+AnnualInflationRate) to the NumberOfYears)

This is not the same as Net Present Value.

 

[Ameesh]

what bank account is giving you 15% return?!? hook us up!

 

[patrickj]

Sorry...this is for a private transcation...I need to determine the value of 9800.00 that will grow at 15% for 30 years assuming 2.5% and 3% inflation.

 

[Haircut]

At 2.5% inflation the $9,800 loses value at a rate of 2.5% per year.

i.e. after 1 year the $9,800 will buy the same as (9,800/1.025) the year before.
Because of the interest it gains in amount by 15% per year, so after 1 year the 9,800 in the account will buy the same as (9,800*1.15)/(1.025) the year before.

I.e. the amount it is worth increases by a factor of (1.15/1.025) per year.
After 30 years it is worth 9,800 * (1.15/1.025)^30 = $309,346.58
For different interest rates, inflation rates and years just substitute the values accordingly.

 

[rbhawcroft]

thats not net present value as far as i know.

if 15% is a fair interest rate then the net present value is 9800usd only. thats because you value a fair risk/ return rate at 15% and thats whats being offered.

all you do is future return after inflation = [usd x 1.(interest rate)to the n] / 1.(inflation rate)to the n

where usd is 9800 here, n is number of years interest paid,

rai= 648875/2.098(2.5%) or 2.427 (3%)=324000 or 270000, that is the figure of todays buying power that the 648000 will have in 30 years.