Maths help from someone good? :)

[Vardinhio]

Working on a variation of price query at the moment and I need to apply the following forumla:

V = P(a+b(Oi/Oo))-P

V represents the variation of price

P represents the FIXED price as at the beginning of Year 3.

Oo represents the OUTPUT Price Index figure at the start of Year 1.

Oi represents the average OUTPUT Price Index figure at the payment date period.

a represents a Non Variable Element (NVE) of 10% (This will be 10% of the price of each item ordered)

b represents the Variable Element

So I have put my figures in and came up with: V = 20(2+18(1.0033/1))-20

Now I expect to get an answer of around 20.07 or something but I end up with 300 odd so clearly something is wrong. The variation is based on indicies in commodity markets but whilst I know this is simple maths it is ages since I have done anything like this. Can anyone explain where I am going wrong? I would be very grateful.

[Carl the Llama]

Just looking at the figures you should be coming out with a tad over 380. Are you sure 18's a correct figure? It has a large effect on the rest of the multiplication which may explain the problem.

Edit: Also, do you know for sure that the correct answer's 20.07? Where are you getting that from?

[Happy Fox]

Likewise you should with that equation be getting 380 odd, so I don't know how you are expecting 20 odd.

[Vardinhio]

hmm ok I think that the sum of components a+b should equal 1 so rejigging it to the below:

V = 20(0.1+0.9(1.0033/1))-20

= 0.066 which I guess must be the increase in price and therefore (V)

That seems to make sense doesn't it? Thank you all by the way!

[Carl the Llama]

hmm ok I think that the sum of components a+b should equal 1 so rejigging it to the below:

V = 20(0.1+0.9(1.0033/1))-20

= 0.066 which I guess must be the increase in price and therefore (V)

That seems to make sense doesn't it? Thank you all by the way!

Makes perfect sense since ignoring the -P at the end would leave you with 20.066 which, when rounded to 2dp, is the new price you were expecting.

Glad to help.