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URL:  http://boards.fool.com/bgpenhollo-ltltltltquoti-am-a-retired-11374612.aspx

Subject:  Re: Pension figured into Networth??? Date:  10/14/1999  9:24 PM
Author:  JAFO31 Number:  14559 of 75594

BGPenhollo:

<<<<"I am a retired educator and after 30 years receive $45,000 in pension. I am now working a second career, am 54, and when I figure my net worth I am not sure how to figure my pension into it. If I had invested $700,000 and then decided to take a 6% CD on that amount I would receive approx what my pension gives me. ">>>>

"The most logical and probably the most complex way to figure any cash flow is through what is known as a Present value of discounted cash flows. This requires an estimate of the number of payments you will receive and when. And an estimate of the discount rate 4-6% would be a good range.

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*Personal Disclaimer: If anyone else is familiar with PV of DCF would they please check my math. I think I am doing this right but this is not my profession*
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Let's say you will be receiving this pension next year
and it will be paid on a yearly basis and let's use your 6% and assume you will receive this $45,000/yr for
another 30 years.

N=30
I/Y=6
PMT=-45,000
FV=0

CPT PV (Compute PV) = $134,582.86

JABoa is the math king around here. He can speak to the details. My eyeball approximation says that $134,582.86 is to small. Assuming beginning of year payment, then first year alone is 45k, second year is roughly $42,450, and third year is roughly 40k for a 3 year total of 127,450; the remaining 27 years must be worth more than $7,200. Even assuming end of year payments, I doubt value would drop that low.

1st year 45k
2nd year 45,000/1.06
3rd year 45,000/1.06^2
etc. . . .
30th year 45,000/1.06^29

Just my $0.02. Regards, JAFO
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