VIATICAL SETTLEMENTS
A viatical settlement is a payment of a life insurance policy while the policyholder is still alive. These settlements are not available to the general public; they’re restricted to people …
Understanding the Mathematics of Personal Finance
^Vhat is personal finance? An informal definition is “how you interact with money.” Among the subcategories of personal finance are topics such as budgeting, saving, borrowing, investing, gambling, and buying …
INEQUALITIES AND RANGES OF NUMBERS
The symbol < means “is less than,” as in 3 < 4. If x represents the numbers of the months of the year, for example, x <4 means x could …
Acknowledgments
A tolerant group of relatives and friends helped me to interpret various published documents about different financial instrument rules’ calculations and then read my drafts and commented on whether or …
Compound Interest
The most common, if not universal, way to express the amount of interest to be paid on a loan is the annual percentage rate (APR). The interest is expressed as …
Background Mathematics
1.1 ARITHMETIC, NOTATION, AND FORMULAS Almost all of the mathematics used in this book involve only the four basic operations of addition, subtraction, multiplication, and division. If you can comfortably …
SOME MATHEMATICS
You can skip this section if you aren’t interested in all the details of the calculations. I recommend that you at least glance through this section to try and get …
MINUS (NEGATIVE) SIGNS
The seemingly benign set of rules for manipulating a minus sign nevertheless manages to cause an endless set of headaches. Let’s see if I can summarize these rules quickly and …
MY WEBSITE SPREADSHEET
If you’d like to try my website spreadsheet calculators, please take a moment and glance through Chapter 15. You’ll find instructions for obtaining a free spreadsheet program if you need …
LISTS AND SUBSCRIPTED VARIABLES
Throughout this book, I make frequent use of tables. Tables are lists of numbers that relate variables in different situations. This isn’t as bad as it first sounds. I’m sure …
ONLINE CALCULATORS
I found so many excellent compound interest calculators that I’ m only listing a representative sample. All of the calculators I found have a good graphical interface. Most of them …
CHANGES
When a number that you’re interested in (the cost of a pound of coffee or the cost of a new home) changes, it’s often more relevant to look at the …
PRORATION—WORKING INSIDE A COMPOUNDING INTERVAL
Suppose I want to pay off a loan 4 months and 20 days after taking the loan.[7] The bank isn’t going to just use the results of the fourth compounding …
EXPONENTS
An exponent is another neat notation. Suppose I want to multiply an expression by itself (called “squaring” the expression): (j + 7)0 + 7) = (j + 7)2. The little …
INITIAL CHARGES AND EFFECTIVE INTEREST RATE
Very often, a bank or loan company will charge some sort of loan initiation fee at the outset of the loan (I call these up-front costs). Suppose, still using Table …
SUMMATIONS
This topic is not necessary for understanding the rest of the book. It’s an introduction, however, to a powerful notation that allows us to work with numbers from arbitrarily large …
GRAPHS AND CHARTS
When looking at relationships between variables, the formula tells it all. Very often, however, a picture is indeed worth a thousand words in “giving us a feeling” for what the …
APPROXIMATIONS
We frequently don ’ t need to know an answer to many decimal places. When we give someone directions to drive to our house, we usually say something like, “Get …
RATES—AVERAGE AND INSTANTANEOUS
This section is useful for understanding the mathematics of the average and incremental IRS income tax rates discussed in Chapter 9 ’ It is not necessary for understanding Chapter 9 …
