Originally Posted by
jimmychang
Ok. This is what I figured out.
Let's say as a diamond, I spend at least $2500 a year at Hyatt worldwide ( 25 nights) .
With a 5% annual discount rate, 5% - in 1 year; 10.25% - in 2 years; 15.76%- in 3 years
I should buy at least $2500 *3 = $7500 of this and save (NPV):
1st year $500- 2500*5%= $375
2nd year $500-$2500*10.25% = $244
3rd year $500-$2500*15.76%=$106
Total: $725
Originally Posted by
peteropny
Good calculation - you must be in finance.
If I were grading Jimmy I'd give him a B for that work.
His calculations assume you receive the benefit in year 1 at the end of the year and each subsequent year one year after that, a more appropriate way to approach it would be that the year 1 benefit occurs throughout the year and for simplicity we'll assume it averages out to six months (we won't try and compound monthly, though I wouldn't penalize someone's grade who wants to), so the sebsequent years would then be one year after that first six month period, so the benefit would be more like $500 - $2500 * 2.5% = $437.50, year 2 being $500 - $2500 * 7.63% = $309.38, and year 3 being $500 - $2500 * 13.01% = $174.84.
Good work none-the-less Jimmy, nothing wrong with a B.