Wednesday, August 15, 2007

The Value of Money Then and Now

The question came up last night about the sum that JT pays Jed in Tall Tales for the "mineral rights" to his land, and what that would be worth today.

Here's a handy fact:

A lump sum grows in value. The Rule of 72 states that an investment at a particular interest rate will double in a certain number of years. You can easily determine how quickly your investments will double simply by dividing 72 by the interest rate that you anticipate receiving in a given investment. For example, an investment that will yield 10% per year will double approximately every 7.2 years (72/10 = 7.2). A 12% yield would mean your investment doubles every 6 years.

Using this math and assuming a 4% interest rate over time, the sum that JT pays Jed Rowan in 1885's Tall Tales would double every 18 years (72/4). Anyone want to venture a guess at its value today?


Melissa said...

So, would is be worth about $2,391.91 dollars today??

Julie Levene said...

Good try but no :) hint: after 18 years, each sum doubles, so from 1885 to 1903 it doubles, then from 1903 to 1921 you double the doubled amount, and so on, and so on. Anyone?

Melissa said... more time....$22,848 dollars (i'm basing this on the $357 bank paper that JT gives Jed)

Julie Levene said...

Well, that's the value in 1993. Flash forward 18 years to 2011 and it's double that, or $45,696. If you want to calculate what it would be in 2007, it's roughly $40,000.

Melissa, you take the prize for being so close and proactive - good work!