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Present value of money?

  • 06-12-2007 7:01pm
    #1
    Deesse
    Registered Users, Registered Users 2 Posts: 47 ✭


    Hi,

    I'm new here, so hope I'm in the right place - no doubt I'll soon be told:D

    Assume there is a debt of say 10k in 1997 and it is to be paid back now in 2007. I would like to work out what the value of this is in todays money.
    I'm thinking of using a continuously compounding formula:

    FV=PVxEXP[rt]

    Now I would like to know what is the fair rate to apply to this for each year?
    Should I use the annual inflation rates? If so where can I get them on the internet - i've looked but can't find?
    Or Should I use standard loan interest rates on a 10k loan over the years? And, again, if so where can i find those rates?

    Any ideas are welcomed. For example, what way did Mr Ahern calculate the interest when he was repaying his loans from his friends?


Comments

  • #2
    Leon11
    Closed Accounts Posts: 578 ✭✭✭Leon11


    Was gonna answer this because I thought it dealt with future cashflows, anyways I'm going OT.

    The revenue publish an index table that gives you a figure to use a multiple. (that's what I used last year in tax so beware it may not be of relevance!)


  • #3
    Deesse
    Registered Users, Registered Users 2 Posts: 47 ✭Deesse


    Thanks a lot for your reply. I've been reading through the Mahon tribunal transcript of Mrs Gunne's evidence today, and here's what I found:

    Bbbertie gets £2500 at end of Dec 1993. This is eqivalent to €3175. He sends payment on 29 Sept 2006 of €5914 in full payment of the "loan".
    Using annual compounding formula FV=PV(1+r)^t, I found that he was using exactly 5% interest rate over the 12.75years.

    If that's good enough for Bertie, I think the person who owes me money should also find it acceptable:)


  • #4
    cazzy
    Closed Accounts Posts: 1,027 ✭✭✭cazzy


    Dont forget to convert it to euros at start of 2002 if it was say £10k.


  • #5
    Mr. Incognito
    Registered Users, Registered Users 2 Posts: 9,798 ✭✭✭Mr. Incognito


    it depends on the circumstances. There is no set formula. For CAT, CGT and other tax purposes there are indexaion rates. this is only applicable for tax, there may also be penalty interest applied.

    For banking institutions it is the prevailing rates of interest one would have received in an ordinary deposit account. The rate of interest depends on the amount of the initaial loan. In your case 10K, 5% a year seems a bit harsh. for a personal loan I'd probably charge about 1.5% as that's all you'd get really in an ordinary depposit account.


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