Inflation 7 years from now how to#
Read this article to learn more about how to use the above formula: Compound interest excel formula with regular deposits Example 2: Start with an initial investment and make regular deposits For the value of r, you will use the real rate of return ( real rate of return = annual return – inflation rate). You will also come out with the same value if you use the following universal formula. In real life, you will get actually return of the amount of $22,609.83 with the following formula (inflation is zero):īut the purchasing power of your value will be: $16,288.95 This is the return you will get (following image).ĭon’t misunderstand one thing.
Inflation 7 years from now download#
(1.05/1.03)-1 = 1.019417 – 1 = 0.019417 * 100% = 1.9417% Download Excel Fileĭownload the Excel file that I have used to write this article.Ĭalculate-future-value-with-inflation-in-Excel Calculate future value with inflation in Excel (Two Examples) We can reach this percentage also using this formula: So, your REAL purchase power has increased from 1 to 1.019417476. How many of these products you can buy today? So, your total money is now: $1000 + $1000 x 5% = $1050.īut do your purchase power the same as before? Say, you could buy a product for $1000, now its price is $1030 (with 3% inflation). The inflation rate is 3% for this period. Suppose, you have invested $1000 in the money market and a got 5% return from there. Let me explain this concept with an example. To get a Real Rate of Return, you have to deduct the Inflation Rate from the Nominal Interest Rate (or your yearly return).
Nominal Interest Rate – Inflation Rate = Real Rate of Return You can use this simplified formula to calculate the real rate of return: For example, if your bank provides 6% per year, then the nominal interest rate is 6%.
The rate, the bank provides your interest is called the Nominal Interest Rate. If you deposit your money with a bank, the bank provides you interest in your deposits. We shall discuss both methods in this tutorial.
If you deposit a small amount of money every month, your future value can be calculated using Excel’s FV function. Here, FV is the future value, PV is the present value, r is the annual return, and n is the number of years. If you invest your money with a fixed annual return, we can calculate the future value of your money with this formula: FV = PV(1+r)^n. Return of your money when compounded with annual percentage return.With inflation, the same amount of money will lose its value in the future. The future purchase power of your money.The future value of money can be thought of in two ways: This is why holding cash is a bad idea in the investment world. So, inflation devalues the cash and increases the price of the product. So, with your holding of $100 cash, you cannot buy the same product after 1 year that you could buy 1 year before.
If we see the general pricing of things, the $100 product will be priced now at $104. If you still hold the cash ($100), after 1 year, your purchase power will be lower ($96) with that $100 cash. And the projected inflation for the next 1 year is 4%. So, most of the time, we see the prices of things are going up. In the following image, we are seeing the inflation and deflation picture of the USA for the last around 100 years.įrom the year 1920 to 1940 (20 years), deflation occurred more than inflation. The prices of things go down in the deflation period. The prices of things go up and this is called inflation. Conclusion What is Inflation and how it affects our lives?
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