Figuring Yield like Lonnie does. . . - Posted by Chill

Posted by DougO(NM) on March 29, 1999 at 18:12:44:

No problem. Aren’t these things COOL ! ?
Doug

Figuring Yield like Lonnie does. . . - Posted by Chill

Posted by Chill on March 29, 1999 at 10:40:36:

I have been reading Lonnie’s book Deals on Wheels.

Can anyone tell me HOW he calculates the Yield?
Example: He is financing \$4300 to his buyer at 9% with 36 payments of \$136.74. He has \$2800 of his own money in the deal so he calculates that with a PV of 2800 and 36 payments of \$136.74, his Yield is 41.24%.

I am looking for the formula for this calculation. Can someone help me? Thanks.

Re: Figuring Yield like Lonnie does. . . - Posted by DougO(NM)

Posted by DougO(NM) on March 29, 1999 at 12:51:42:

The formula is in the financial calculator. There are five variables to know about when we discuss time value of money.
I=Interest Rate
PV=Present Value (Loan amount or amount invested today)
N=Number of periods (usually in months)
PMT=Amount of the payment per period
FV = Future value
To solve for what we want, following the procedure for the particular calculator we are using, we enter the three variables we know, then ask the calculator to find the one we want. In the example you used:

Example: He is financing \$4300 to his buyer at 9% with 36 payments of \$136.74. He has \$2800 of his own money in the deal so he calculates that with a PV of 2800 and 36 payments of \$136.74, his Yield is 41.24%.

The first step is to find out the answer to this question: "What is PMT (monthly payment) when PV (loan amount) = \$4,300, I= 9 and N= 36 ? Enter the known variables in the calculator and solve for the unknown, in this case PMT. It helps to make a chart as I’m sure Lonnie does in the book:
N I PMT PV
36 9 ? \$4,300 Solve for PMT
\$136.74
The next question is this: If I have \$2800 invested (PV) and I will be getting 36 payments of \$136.74, what is I ?
N I PMT PV
36 ? \$136.74 \$2,800 solve for I
41.24%
Hope this helps, sorry if it’s not what you wanted
Doug
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Re: Figuring Yield like Lonnie does. . . - Posted by JohnB_NJ

Posted by JohnB_NJ on March 29, 1999 at 15:40:05:

Thanks!! Doug

I purchased a financial calculator the other day and I have been struggling with it for a few days. Your examples opened my eyes.

Thanks again for taking the time to explain with your fine examples…

Good investing!!!

Sincerely,
John Bittel