All Topics / The Treasure Chest / HOw does one calculate inflations?

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  • Profile photo of VaslavVaslav
    Member
    @vaslav
    Join Date: 2003
    Post Count: 86
    September 14, 2003 - 6:25 am

    Hi, i’ve just finish reading Steve’s book but i have this one Burning question. in page 100, he calculated the inflation for his dad’s property in Collingwood. I still can’t figure out how exactly he calculated that inflation? anyone able to help me with this ?

    Property Bought at $64000 in 1984
    Property sold 17 yrs later at $295000
    Inflation on average is 4.28% for the 17 yrs

    so how did Steve get the price of $144550 after discounting the inflation back to 1984 dollars from the sale of $295000?

    Kev

    Profile photo of Stuart WemyssStuart Wemyss
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    @stuart-wemyss
    Join Date: 2003
    Post Count: 598
    September 14, 2003 - 6:46 am

    Hi Kev

    Calc is as follows:

    Historic cost * (1 + inflation rate)^ years

    ^ = to the power of

    Therefore,

    $64,000 * (1 + 0.0428)^17 = $130,496

    Therefore, the present value of the property is $130,500.

    Cheers

    Stu

    Profile photo of AndrewsalAndrewsal
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    @andrewsal
    Join Date: 2003
    Post Count: 32
    September 14, 2003 - 7:34 am

    Good one Stu.

    I will have to get a hold on that book myself.

    Andy[8D]

    Profile photo of VaslavVaslav
    Member
    @vaslav
    Join Date: 2003
    Post Count: 86
    September 15, 2003 - 4:09 pm

    Hi Stuart,

    Thanks for the info. however the price doesn’t correlate with Steve’s calculated figure of 144550 though. was there a mistake in Steve’s calculation? coz by applying ur formula, i manage to reach the same numbers as you Stuart.

    thanks Kev

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