How do you INDEX LINK

derferjam · 11-10-2014 1:20pm #1

Does anyone know how do you index link a sum of money or earnings

smcgiff · 11-10-2014 1:22pm

derferjam wrote: »

Does anyone know how do you index link a sum of money or earnings

first, find applicable index.
second, apply

derferjam · 11-10-2014 1:38pm

You will have to excuse my igroance but I don't understand what you are telling me. I will be getting 7000 a year for the next fifteen years it is a fixed sum of money. However I was trying to find its true value over the 15 years.
Does that make it any easier to understand my plight

smcgiff · 11-10-2014 2:16pm

Ah, you're trying to find out the current value of such an arrangement.

Has the person/organisation giving you this provided this for you?

The calculation is easy enough, it's the factor applied and inflation rate that's important.

derferjam · 11-10-2014 2:23pm

Ok a bit more info see if you can help suss it out. I've been asked forpremission to plant a forest on my land in return for 7000 per year for the next 15 years.

smcgiff · 11-10-2014 5:27pm

Hi,

Here's a website where you can plug in the figures yourself. I think the interest rate/discount factor would be low based on the current financial factors, but it will change over the next 15 years.

IF you used a low discount rate of 2% your current(present) value of what you were being offered would be the equivalent of approx €90k.

If things returned to more normal rates and a discount factor of, say, 5% were used it would only be worth approx €72.7k

http://easycalculation.com/mortgage/present-value-for-annuity-amount.php

Key variables are as per below

C = Cash flow per period
i = interest rate
n = number of payments

MicktheMan · 11-10-2014 10:44pm

derferjam wrote: »

Ok a bit more info see if you can help suss it out. I've been asked forpremission to plant a forest on my land in return for 7000 per year for the next 15 years.

Get them to index link the 7000 so you will receive the value of the 7000 in todays money every year. Otherwise the real value of what you receive will diminish every year. Here's an example (assuming inflation is 2% over the next 15 years):

1 2% 7000
2 2% 6860
3 2% 6723
.
.
.
15 2% 5275

derferjam · 12-10-2014 10:28am

Thanks very much very helpful making far more sense now. Good on yeah.

myshirt · 12-10-2014 11:59am

Short and sweet answer is you'll be getting 7k a year + a top up (or deduction) to make sure inflation doesn't 'eat' your money (or that you don't gain).

Provided nothing outrageous happens to Ireland, you'll be getting there or there abouts 7k each year.

That's all you need to know really, bar it being a bad deal. To lock in for 15 years I would hope that my land would earn more than inflation. Are there any alternative uses for the land? What sort of condition is it in?

How do you INDEX LINK

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