ADONGO’S GROWTH MODEL
The period-no matter how brief-between
before and now indicates that time must have passed. The way in which money changes its values in time is an importance issues in finance. In finance, we can estimate the
future value of amount invested or borrow today. In finance, we can estimate
the present value of an amount paid or received at a certain time in future.
Today, I
shall be concerned strictly with only two questions.
1) It is possible to estimate growth
rate and present value in time without accumulative value?
2) It is possible to estimate the accumulative
value and growth rate in time without initial value?
The answer depends mainly on one factor which was discussed from my
previous Diary(or Weblog), titled Adongo’s Growth Rate. Adongo’s(or my) Growth Rate has useful application in finance
and is defined as;
Rg=(1/T)ln(v/eln(v)/2)….(1)
Rg =(1/T)ln(I/n)……..(2)
Where,
Rg=growth rate
I= Initial value
V=accumulative value
T=total time
n=observed period
ln=natural logarithm
e=constant
NB:The formula v/eln(v)/2= eln(v)/2
the basic concerns of equation(1) and (2) above is to
1)determine long term investment strategy a company should take on.
2)determine how cash can be raised for the required investment.
3)determine how much short term cash flow does a company need to pay its
bills.
4)determine the necessity and consequences of paying for an increasing
risk with level premiums.
EXAMPLE
How much sum of money and growth rate is needed to produce $9000
in four years?
solution
The total
observed time is given as;
T=1+2+3+4=10
Growth rate
is given as;
Rg=(1/10)ln(9000/94.86832979)
Rg=0.455
The initial
value is give as;
I=4(94.63240831)
I=378.53
A sum of
$378.53 is needed to attract growth rate 45.5% to attract $9000 in four year
time.
REFERENCE
Adongo Ayine William(Me), Diary(or Weblog), "Adongo's Growth Rate"
