Value of €1,000 in years to come

[8till8]

Help me out here !

I'm trying to illustrate to my staff how the value of €1,000 per year drops each year, heres a simple table;

Present Value of €1,0001000End of Yr1952End of Yr2907End of Yr3864End of Yr4823End of Yr5784

I've just taken into account 5% for inflation (is that sufficient?)

I'm hoping to get across that if staged payments are used, then they must be made on-time and the profit added has to be done very carefully to take into account the falling value of the payments.

Ta in advance!

 

[ClubMan]

I've just taken into account 5% for inflation (is that sufficient?)

Who knows. Nobody can predict what inflation will be in the future. How did you get your figures? Assuming a fixed rate of inflation I get:

Initial sum: €1,000.00
End of year 1: €950.00
End of year 2: €902.50
End of year 3: €857.38
End of year 4: €814.51
End of year 5: €773.78

 

[Square Mile]

Hello all

I think that the calculation is

1000 divided by (1.05 to the power of n), where n is the relevant year e.g. 1000/(1.05)^5 = year five figure of 783.52.

SM

 

[Square Mile]

Hello

You could also add that if the €1000 is kept in a mattress rather in a bank account that the value is reduced further (alternatives forgone).Example, if inflation if at 5% and you could get a return of 4% in a bank then the new discounting figure is 1.05 multiplied by 1.04 = 1.092.

The calculation for year five would then be 1000/1.092^5 = five year value of €644.00.

SM

 

[demoivre]

Help me out here !

I'm trying to illustrate to my staff how the value of €1,000 per year drops each year, heres a simple table;

I wouldn't bother using PVs to explain how inflation erodes the purchasing power of money - ask your staff how a pay freeze for five years would impact on their lives and why ! I think they will cop on soon enough .