One of the most important elements in
financial forecasting is taking into account the effect of inflation when
projecting future prices. There are two elements to consider, the
mathematics and the assumed rate of inflation.
Operators (as used in spreadsheet
programs):
* is multiplication
^ is exponentiation
Equation:
Future price = Current Price * ((1 +
Inflation Rate) ^ Number of Years).
Generally accepted long-term rate of
inflation:
3.1% per year (written in decimal form
0.031 in computations)
Example:
Price of putting a new roof on your home
in 15 years. The current price for this job is $7,000.
Equation: Future price = $7,000 *
((1+0.031)^15)
Future price in 15 years = $11,065.68
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