How good is your money maths?

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  • I think you're wrong Martin, as you didn't take into account that if you owned shares then an amount of money would get paid as dividends.

    In *theory* (and in the real world it's slightly more complex) but if you had 4 good years then 4 bad years these early good years might pay more in dividends which gives you 8 years to earn interest on the money. If you also take into account the rate of inflation your holding would be worth less money each year which would again back earning dividends earlier on.
  • I got it right, but had to do the maths with an example, rather than knowing why!
  • Is this an illustration of my theory that, with the exception of MoneySavingExpert, the only people guaranteed to make money from financial advice are financial advisors & of course the bankers!
  • Sharon87
    Sharon87 Posts: 4,011
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    I got it right on my initial thought, but then done an example to confirm it before I submitted.
  • I think you're wrong Martin, as you didn't take into account that if you owned shares then an amount of money would get paid as dividends.

    In *theory* (and in the real world it's slightly more complex) but if you had 4 good years then 4 bad years these early good years might pay more in dividends which gives you 8 years to earn interest on the money. If you also take into account the rate of inflation your holding would be worth less money each year which would again back earning dividends earlier on.

    This is an amusing sum.

    But I think fat-pudding hit the nail on the head. Given that most stocks generate a cash flow, if the P/E ratios remained the same with the price fluctuations, I would always choose higher cash flows initially. Even if re-invested at a modest interest rate, option A will beat option C.

    This question doesn't take into consideration the time value of money.

    But I'm just being difficult now, so let me shut up. :rotfl:
  • Naf
    Naf Posts: 3,160
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    I can't highlight the answer on my iPad ... Which was right?

    Copy & paste it into your notes.
    Answer was C
    Never argue with stupid people, they will drag you down to their level and then beat you with experience.
    - Mark Twain
    Arguing with idiots is like playing chess with a pigeon: no matter how good you are at chess, its just going to knock over the pieces and strut around like its victorious.
  • AlexLK
    AlexLK Posts: 6,125
    Debt-free and Proud!
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    I was correct, nor did I find the problem difficult. *smug*
    2018 totals:
    Savings £11,200
    Mortgage Overpayments £5,500
  • yz324
    yz324 Posts: 74 Forumite
    I misunderstood the question...

    I thought the 3rd question mean the first two things are the same. the poll result just shows how badly maths is taught in the UK...
  • I may be being particularly thick, but surely the time this runs for means that the changes are compounded?

    Rising 4 years and then falling 4 years means you end up with less than you started with (the falls are numerically bigger than the rises were).

    Falling 4 years then rising 4 means the gains are larger.

    In numbers terms:
    Four years rise then four year fall.

    Start with £100.00 in year 1, by year 2 it's x1.1 = £110.00, year 3 £121 and year 4 £133.10; then fall by 10% (i.e x0.9) year 5 £119.79, and so on to give £107.81, £97.03 and then £87.33.

    Four years fall then four year rise.

    Start with £100.00 in year 1, by year 2 it's x0.9 = £90.00, year 3 £81 and year 4 £72.90; then rise by 10% (i.e x1.1) year 5 £80.19, and so on to give £88.21, £97.03 and then £106.73.

    Or like I say, am I being really dim?
  • ExPat Taff you missed out a year in your calculation.

    Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
    A 1100 1210 1331 1464 1317 1185 1067 960.596
    B 900 810 729 656 721 793 873 960.596
    C 1000 1000

    I need to do it with numbers, as I didn't have a clue with algebra.
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