- Is there anyone clever here? I need some maths help please.
I'm stuck with a little calculation and hope someone will be able to help me. I need to calculate how much money I will have if I invest a regular amount over a period with a certain rate of return BUT the regular contribution increases over the period.
I know that if I invest £100 a year over 10 years and receive interest of 5% per annum the calculation is
£100.00 * ((1.05^10)-1) * 1/0.05 = £1257.79
But I can't work out what to do if that £100.00 increases each year, say by 2.5% so the first years contribution is £100.00 the next is £102.50 then £105.06 etc.
Any mathemeticians able to help me please?Posted 9 years agotronMember
I'd do it in Excel (by the looks of the formulae, you already are).
First row as year 1 – go Beginning funds | End funds
Beginning funds would be your £100, end funds would be =A1 * 1.05
Second row would begin with =B1 + £100, then second cell (B2) would be =A2*1.05
Then just select the second row, use the little marker in the bottom right of the selection to drag and fill for as many years as you want. You may have to use some ! marks to force some references to be static.Posted 9 years ago
Interest is calculated at set times ie daily, weekly or whatever – it should tell you this. So each day, you get given 0.00324% or whatever of what your balance is.
There's no formula for it – you need to use Excel (or similar) to list the figures for each day/week/month and do the calculation based on the previous row.Posted 9 years ago
£1395.24p for your example 😉
formula for a growing annuity is here:Posted 9 years ago
I can do it in excel but it would be better to use a formula for what I want to do. The calculation is an estimate for the future so I can ignore interest rate changes as I am assuming they remain constant.
Maybe my explanation wasn't the best….imagine I am saving for a single speed niche wagon and can only afford to save x percent of my salary each month but I am assuming my salary will go up by 2.5 percent each year and my savings will return 5 percent interest each year. I need the formula to calculate how much I will have after a specific period of saving.
I can remember vaguely what sigma notation, differentiation and integration are so I know this can be put into a nice little formula but not how to do it. When I did A levels they were proper exams etc, etc.Posted 9 years agoHo humMember
Stoner – Member
£1395.24p for your example
formula for a growing annuity is here:
I agree and that is what I learned when I was doing my actuarial exams.Posted 9 years ago
show your workings then
No, just knowing how to poke summation formulae into line.
Okay, so at the end of the first year, you have:
100 * 1.05 + 100 * 1.025 – your initial investment + interest + your second investment
At the end of the second year:
(100 * 1.05 + 100 * 1.025) * 1.05 + 100 * 1.025^2
((100 * 1.05 + 100 * 1.025) * 1.05 + 100 * 1.025^2) * 1.05 + 100 * 1.025^3.
Or, to simplify terms:
100 * (1.05^3 + 1.05^2 * 1.025 + 1.05 * 1.025^2 + 1.025^3)
This looks a bit like a geometric progression, but with terms of the type Ar^k s^n-k.
So take S to be the sum:
S = x^3 + x^2 * y + x * y^2 + y^3. (this logically can be expanded to n terms).
Examine, and multiply by x/y.
Sx/y = x^4/y + x^3 + x^2 * y + x * y^2.
Subtract one from the other:
S-Sx/y = -x^4/y + y^3
Multiply by y:
Sy-Sx = y^4 – x^4
S(y-x) = y^4 – x^4.
S = (y^4-x^4)/(y-x).
And for n terms:
S = (y^(n+1) – x^(n+1))/(y-x).
Feed back into original formula to get the answer.Posted 9 years ago
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