Abstract
The role of forecasting interest and inflation rates in present worth analysis is discussed and a method proposed in which these rates are combined into a single parameter. We analyzed historical data between 1970 and 1978 for various countries to show that this parameter is stable; thereby allowing past data to be used as a forecast for future values and eliminating the need to estimate future inflation and interest rates in present worth analysis. Also, using this simple parameter we show that inflation and interest rates tend effectively to cancel each other in present worth analysis, thereby greatly simplifying present worth calculations.
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