The formula to calculate the Back Index (BI) is:
\[ BI = \frac{CI}{(1 + r)^n} \]
Where:
A Back Index is a financial tool that recreates the performance of a particular index over a specific period in the past. It is used to analyze historical trends and performance of an index, which can help investors make informed decisions. Back indexes are often used in backtesting investment strategies to see how they would have performed under past market conditions.
Let's say the current index value (CI) is 1000, the annual inflation rate (r) is 0.03, and the number of years in the past (n) is 5. Using the formula:
\[ BI = \frac{1000}{(1 + 0.03)^5} \approx 862.61 \]
So, the Back Index (BI) is approximately 862.61.
