Quote:
Originally Posted by simpletron
it doesn't matter how much you spend because it doesn't affect the value of payment plan. So in effect yes, the calculations are just like you never spent any because it is easier to calculate.
which is more valuable if interest is 10%?
A) 100K this year or
B) 9K a year forever
the answer is A, because B will never catch to the interest payments of A. it doesn't matter how much you spend every year because A is always greater than B with any spending plan that follows the same pattern with the same amounts applied to each payment plan. spend 9K/year with B you're hitting at 0 constantly, with A you'll never drop below 100K for the end of the year.
|
This is not exactly correct either. You have to discount the payments every year. All these formulas are in a basic finance book. Again, time value of money.
Formulas at wikipedia link.
Time value of money - Wikipedia, the free encyclopedia