Calculating % of CG???

[voodoo]

Hi,
i was wondering how do you calculate the % of capital growth over the years.

My Inlaws purchased a property in 1970 for 20k and it is now valued at approx 750k.

If property grows at approx 8% pa and they have had this property for 34 yrs, then it has increased by 272%. is this correct??

So how do I increase 20k by 272% to get todays value?

I put these figures in the PIA software, 20k to 750k in 23 yrs and the capital growth average is 17% pa . Does this sound correct??

cheers

 

[GreatPig]

how do you calculate the % of capital growth over the years.

Using the formula for compound interest:

F = P(1+r)^n

where 'F' is the future price, 'P' is the current price, 'r' is the interest rate (as a fraction), and 'n' is the number of years. This is based on annually compounding growth.

If property grows at approx 8% pa and they have had this property for 34 yrs, then it has increased by 272%. is this correct??

No, as that doesn't consider compounding.

If you start with $1 and compound it annually for 34 years at 8%pa you'll end up with:

F = $1(1.08)^34
F = $13.69

a total gain of 1269%

My Inlaws purchased a property in 1970 for 20k and it is now valued at approx 750k

Working out the annual interest rate from that requires a calculator that can do multi-power roots. The one in Windows can do that.

r = RT(n)(F/P) - 1

where "RT(n)" is my way of writing the nth root of F/P. Thus:

r = RT(34)(750/20) - 1
r = 0.1125 or 11.25%

20k to 750k in 23 yrs and the capital growth average is 17% pa . Does this sound correct??

Not sure why you're using 23 years now, but:

r = RT(23)(750/20) - 1
r = 17.07%

GP

 

[voodoo]

Thanks greatpig, I will have a closer look at this later, I didnt realise it was so technical.

Sorry, it was meant to be 33 years not 23.

thanks again

 

[GreatPig]

I didnt realise it was so technical.

Well it's only a short, simple formula, but the power/root calculation makes it a bit hard to do in your head .

GP