HOW LONG WILL MY NUMBER LAST?
EQUATION #1: LEONARDO FIBONACCI (1170–1250)
Leonardo had a problem. A close friend had invested some money a few years earlier in a local Italian bank, in Pisa, that promised him steady interest of 4% per month. (Yes, I wish I got 4% interest per month. I don't even get that per year nowadays. Sounds shady to me.) Anyway, rather than sitting by and letting the money rapidly grow and compound over time, Lenny's friend started withdrawing large and irregular sums of money from the account every few months. These sums were soon exceeding the interest he was earning and the whole process was eating heavily into his capital. To make a long story short, Leonardo—known to be quite good with numbers—was approached by this friend and asked how long the money would last if he kept up these withdrawals. Reasonable question, no?
Now, if Leonardo had been me, he'd have pulled out his handy Hewlett-Packard (HP) business calculator, entered the cash flows, pushed the relevant buttons and quickly had the answer. In fact, with any calculator these sorts of questions can be answered quite easily using the technique known as present value analysis—something all finance professors teach their students on the first day of class. Later, I'll explain this important process in some detail.
Unfortunately, Leonardo didn't have access to an HP business calculator that ...