This calculator computes how much an amount saved in an initial year grows, depending on the type of financial investment or asset chosen.

There are three alternative investments you can choose:

• a short-term asset (similar to a saving account at a bank)
• a long-term asset (similar to a mutual fund of corporate and government bonds)
• a bundle of corporate stocks.

If you chose the short-term asset, the calculator assumes that the principal investment is made in equal installments throughout the initial year at the average short-term rate for that year. The principal plus the interest accumulated is then reinvested at the average short-term rate for the second year. This continues until the final year, when the withdrawal is assumed to be made over equal installments throughout that year.

If you chose the long-term asset, the calculator assumes that the principal investment is made in equal installments throughout the initial year at the average long-term rate for that year. The principal plus the interest accumulated is reinvested at that same rate for the second year, and continues at that rate for the number of years of the term you have selected. At this point, the calculator will use the long-term rate of the next year and repeat the process. This continues until the final year, when the withdrawal is again assumed to be made over equal installments.

If you chose the stock asset, the calculator assumes that the principal investment is purchased in equal installments throughout the initial year. The investment is a stock portfolio valued at the average price of the stock index for the year. It is assumed that you hold the portfolio until the year of withdrawal, and that you sell the portfolio in equal installments throughout that year at the average price of the stock index for that year. It is also assumed that, during the entire period of investment, there are no commissions or taxes paid and no dividends received.

The short-term rate used is the interest return on treasury bills, carried back in time by the interest rate on commercial paper. The data are "U.S. Short-term: Ordinary funds, Consistent series" in What Was the Interest Rate Then?.

The long-term rate used is the interest return on corporate bonds carried back in time by the interest return on New England municipal bonds, and U.S. government securities. The data are "U.S. Long-Term: Consistent Series" in What Was the Interest Rate Then?.

The stock asset used is the Dow Jones Industrial Average, carried back from 1896 to 1885 by the Dow Jones Average. The input to the calculator, for each year, is the average of the daily Dow Jones figures for the year. The daily figures are in Daily Closing Values of the Dow Jones Average, May 2, 1885 to Present.