# investment Asset Growth Calculations

Does the program calculate the asset growth for the current year based on the investment asset value at the end of last year BEFORE deducting expenses for this year? If it does, then it would be assuming an income on funds that are spent early in the year.
Thanks
James

1

Hi James,

Does the program calculate the asset growth for the current year based on the investment asset value at the end of last year BEFORE deducting expenses for this year?

Yes

If it does, then it would be assuming an income on funds that are spent early in the year.

This is a discrete time framework. Each period is a year. We assume that income (including asset income) is earned at the end of the year and that spending occurs at the end of the year. Had we set the program up on a monthly basis, users would have rebelled over the amount of input required. So you are right that this is not as accurate as a monthly, weekly, daily, or, conceivably, houly time frame.

best, Larry

2

Can you elaborate on how the EOY asset value is calculated, ie how the Regular Asset values on the Detail report are derived. I would like to know how borrowing (negative savings), interest expense and interest income come into play in deriving that value.

3

HI, I RESPOND BELOW IN CAPS TO YOUR QUESTION, WHICH I COPY HERE. BEST, LARRY

Can you elaborate on how the EOY asset value is calculated, ie how the Regular Asset values on the Detail report are derived. I would like to know how borrowing (negative savings), interest expense and interest income come into play in deriving that value.

FIRST, DISSAVING (NEGATIVE SAVING) DOESN'T NECESSARILY ENTAIL BORROWING. IT MAY SIMPLY MEAN THE HOUSEHOLD IS SPENDING DOWN ITS ASSETS. IF THE HOUSEHOLD'S REGULAR ASSETS GO NEGATIVE, THEN THERE IS BORROWING. THIS WILL ONLY OCCUR IF YOU SPECIFY A POSITIVE MAXIMUM INDEBTEDNESS LEVEL UNDER ECONOMIC ASSUMPTIONS.

IF YOU TELL THE PROGRAM THAT'S IT'S OK TO GO INTO DEBT BY AT MOST \$X AND THE PROGRAM PUTS YOU INTO DEBT IN ORDER TO BETTER SMOOTH YOUR LIVING STANDARD, WE ASSUME THAT THE INTEREST YOU PAY ON YOUR BORROWING IS THE SAME AS THE INTEREST RATE YOU EARN ON YOUR REGULAR ASSETS. I.E., THE AMOUNT BORROWED ENTERS THE PROGRAM AS NEGATIVE REGULAR ASSETS.

REAL INTEREST INCOME IS THE REAL RETURN ON REGULAR ASSETS MULTIPLIED BY THE AMOUNT OF REGULAR ASSETS. WE CALCULATE THE REAL RETURN AS THE QUANTITY 1 PLUS THE NOMINAL RETURN DIVIDED BY 1 PLUS THE INFLATION RATE DIVIDED MINUS 1.

CALL ME AT 617 834-2148 IF THIS ISN'T CLEAR.