PAYING OFF A LOAN VERY SLOWLY

This section uses a little math, but I’ll go through it slowly in small steps. As with the previous section, this section is not necessary if you don’t want to …

Taxation and Inflation

John Lennon once said, “Life is what happens to you while you’re busy making other plans.” Both taxation and inflation, it seems, are parts of life—they happen to you while …

PARI-MUTUEL BETTING

The pari-mutuel machine system used at race tracks offers a different approach to gambling. A roulette wheel owner is never sure what his or her daily operating cost will be; …

Prepayment Penalties

When you take a loan, the lender has legitimate up-front costs in preparing the paperwork, setting up the account, monitoring the payments, and so on. In the case of a …

DECREASING TERM INSURANCE

Another type of term life insurance is decreasing term life insurance. A decreasing term life insurance policy pays a little less each year for the term of the insurance. As …

A BANKRUPTCY SPIRAL

Table 6.5 shows a month-by-month account of how things can go very, very, wrong. In doing the calculations, I’m just looking at monthly updates—I’ll assume that you Table 6.5 A …

Investing: Risk versus Reward

If you kept all your savings in cash in a shoe box under your bed, you would be risking loss due to theft, fire, and so on. On the other …

MY WEBSITE SPREADSHEET

The spreadsheet Ch3Amortization. xls, Loan tab, produces an amortization table for a loan with regular monthly payments. Table 3.7 is a snapshot of a part of this spreadsheet. This table …

UNDERSTANDING PERSONAL FEDERAL INCOME TAX RATES

Every year in the United States, on April 15, our income tax filings are due. The federal government, most states, and some cities collect income taxes. In almost all cases, …

Spreadsheet Calculators

15.1 INTRODUCTION TO THE SPREADSHEETS Two approaches to providing readers with computer-based calculators are employed in this book. One approach is to provide links to the many online calculators that …

RULE OF 78

This rule is sometimes called the sum-of-digits method. I’ll explain where both of these names came from shortly. As you shall see, any loan bearing this type of prepayment penalty …

INSURANCE FOR THE REST OF YOUR LIFE

What if you want a life insurance not for a specific period such as 20 years but simply for the rest of your life? This type of policy would be …

MINIMUM PAYMENT

Every credit card statement shows a minimum payment or a minimum amount due. This is the least amount of money that you can send in (before the due date) that …

CALCULATORS

The spreadsheet Ch13Stocks. xls will do correlation calculations and produces some numbers that I haven’t introduced yet. To use this spreadsheet, you must enter some stock prices. You can do …

A NOTE ABOUT TOTAL INTEREST FOR A YEAR

When adding up the total interest paid or received for a year for income tax purposes, it is important to look at the details very carefully. For example, suppose you …

TAXATION OF EARNED INTEREST

While determining what interest is taxable and what interest isn’t taxable can be a fairly sophisticated task, figuring out the tax on taxable interest is very straightfor­ward. Let’s say that …

SOME PROGRAMMING NOTES

When you enter a number of payments in one of these spreadsheets, the sheet shows entries from Pmt Nr 0 or 1, as appropriate for the topic at hand, up …

OTHER PREPAYMENT PENALTIES

The list of how many different forms of prepayment penalties can be contrived is endless. Here are a few examples I have encountered: 1. Six months’ interest on 80% of …

WHOLE LIFE INSURANCE

A popular policy with a fixed monthly payment is the so-called whole life policy. There are so many variations on how this can be structured that I can’t possibly cover …

OTHER INTEREST CALCULATION APPROACHES

The ADB method of calculating finance charges that I presented above is not the only way that finance charges are calculated. Other approaches include the adjusted balance, the two-cycle ADB, …

DOLLAR COST AVERAGING

Figure 13.8 shows the daily price of three obviously fictitious stocks for about a year’s trading. The stock labeled “going nowhere” starts at 100, then periodically cycles between 75 and …

LOANS WITH FIRST PAYMENT DUE IMMEDIATELY

When you borrow cash, you don’t usually make your first payment on the loan at the time you get your cash; instead, you wait for a month (or whatever the …

DEDUCTIBLE INTEREST

The calculation of the amount of tax you don’t have to pay if you can deduct some interest is the same calculation as for the tax on taxable interest; you …

Solutions

16.1 CHAPTER 1 1. (a) 7 - (12 - 5) = 7 - 7 = 0 (b) 12(14 - 6) = 12(8) = 96 16-(3 + 7) _ 16-10 _ …

Credit Cards

Credit cards are such an integral part of our society that it’s hard to imagine a time when they weren’t around. Store and gasoline credit cards have a long history, …

BREAKING DOWN THE YEAR

This topic is a little math intensive and is not necessary for you to understand the rest of this chapter. The only sophisticated math, however, is handled using a spread­sheet …

Present Value

Suppose you told me that you had • walked into a television store, • handed the store owner $900, and • walked out with a television that sold for $1,000. …

SHORT SALES

So far, this chapter presumed that the way to make money is to “buy low, sell high.” This is true, but it isn’t the only way to make money. Buying …

IRREGULAR PAYMENTS

I f you decide to make a payment that is larger than your regular payment, your balance will be reduced by an extra amount. Your lender should reduce your balance, …

DEFERRED TAXATION SAVINGS

The U. S. government offers several different tax deferral schemes for workers to use to build their “nest egg.” There are 401K plans, individual retirement accounts (IRAs), Roth IRAs, self-employed …

CREDIT CARD STATEMENTS

Each credit card company’s monthly credit card statement has a unique layout, so I can’t specifically explain your statement to you. Statements are similar, however, in having the following sections: …

Annuities

A single clear, concise, definition of annuity is impossible to create, because there are two principal financial vehicles called annuities and an untold number of varia­tions and combinations within each …

THE EFFECT OF INTEREST RATES ON PRESENT VALUE CALCULATIONS

The present value of amounts of money in the future, as the above calculations show, depends on the available interest rate. If interest rates are very low, then the present …

OPTIONS

Many types of “futures” products are available for the aggressive investor. I’m going to explain just one of them: options. A stock option gives the purchaser the right, but not …

REGULAR SAVINGS

The other side of making regular payments to amortize a loan is making regular payments into a savings account so as to build up resources for your retirement, for a …

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