Warren Buffett and the $$300,000$ Haircut

Click here to view the full article on

WSJ$.$com

by: Jason Zweig

August, $28,2020$

TOPICS: Present Value $($PV$)$ and Future Value $($FV$),$ Compounding

SUMMARY: There's a reason the Oracle of Omaha is an yltrabillionaice as he turns $90$: He grasped the power of compounding at the age of $10.$ The sooner the rest of us fully understand it$,$ the better off we'll be$.$ He probably got over his regret about that visit to the barber in his $20\text{'}$s$.$ Probably. "Warren began to think about time in a different way. Compounding married the present to the future."

QUESTIONS:

Verify, using the $FV=PV(1+r{)}^t,$ fhat $$1000$ invested today would be worth $>$$$1,600$ in $5$ years at $10\%$; nearly $$2,600$ in $10$ years at $10\%$;$>$$$10,800$ in $25$ years at $10\%$; and almost $$117,400$ in $50$ years at $10\%.$

Calculate, using the $FV=PV(1+r{)}^t,$ what a Dow Jones Industrial Average of $28,500$ today would be if compounded at $1\mathrm{.}6\%$ annually until Dec $31,2099(80$ years$)$; what if compounded at $4\mathrm{.}6\%$ annually; what if $7\mathrm{.}7\%$ annually.

If a haircut has a $FV$ of $$300,000$ in $80$ years, what is the $PV$ of that haircut? What interest rate did you choose for your calculation?