ADONGO'S GROWTH MODEL

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;

R_g=(1/T)ln(v/e^ln(v)/2)….(1)

R_g =(1/T)ln(I/n)……..(2)

Where,

R_g=growth rate

I= Initial value

V=accumulative value

T=total time

n=observed period

ln=natural logarithm

e=constant

NB:The formula v/e^ln(v)/2= e^ln(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;

R_g=(1/10)ln(9000/94.86832979)

R_g=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"