Hope for the intimidated.... - Posted by Carol FL

Posted by Carol on March 11, 2000 at 16:25:37:


Hope for the intimidated… - Posted by Carol FL

Posted by Carol FL on March 02, 2000 at 21:26:09:

I was debating whether to post this here or on the Personal Effectiveness board on John’s site, but in case there are “note lurkers” out there, this seemed to be the place.


Finally, after hanging around for months, it is starting to make sense. At John’s round table in Atlanta, I found myself very frequently silently answering the questions which folks would ask… maybe not highly technical and esoteric ones … but enough to show me that I DID have a small grip, anyway.

Then, today, while in the office working on my ‘daily bread’, I realized that multiple cash flows worked out on a calculator that had all of the formulae inside, sitting there, ready for you would be nothing compared with the calculations and conversions I deal with … lbs to metric tonnes, to lbs solids (a measure of the degrees of sugar in a concentrate), to gallons to liters… and from currency to currency, and from FOB to C+F (ie including freight and whatnot and duties and garbage).

Bottom line is that I , and each of us, has more than enough capacity to grasp and deal with anything we chose, once we open our minds to it.

I would encourage those who may find the subject of this board a bit intimidating to stand back and take another look at themselves.

It may be an eyeopener!

Thanks, all.

Sorry I missed your… - Posted by DanM(OR)

Posted by DanM(OR) on March 05, 2000 at 18:49:20:

challenge. I love a good game of calculator tag.

What’s the next quiz going to be?

Great job Pete!

Dan Matejsek

Great - now on to the advanced stuff - If you pass - test time! - Posted by John Behle

Posted by John Behle on March 03, 2000 at 13:25:33:

Ok, so Bert wants to buy Ernie’s house. Both would like the house paid off as early as possible. Their Realtor, Mr. B. Bird, suggests that since Bert’s Seasame Street royalties increase each year that they work out a livable payment that graduates each year.

The house is selling for $100,000 with 20% down. Ernie wants 14% on seller financing and Bert wants 4%. They negotiate down to 7.325% for the first 2 years and 8.69% therafter.

Since Bert is just out of rehab and blew most of his savings on an investment in some white powder. Actually his advisor had suggested Coca Cola stock, but he had mis-understood in his enthusiasm.

So, aside from barely enough to put down the 20%, he can only afford payments of $500 per month for the first year. Yet, his income is increasing and he could raise that amount by $100 (per month) each year.

Ernie would like a little more money than the 20% down, so he wants to sell off the first half of the note for half of the face value. He’s not sure if the yield is good enough for an investor - especially since he thought “yield” was a traffic sign.

No one in that city can quite figure it out, but someone suggests that there is a couple pros in Winter Haven Florida that could do this calculation with one half their brains tied behind their back.

Way to go Carol!! I am proud as a new pappa :slight_smile: (nt) - Posted by DanM(OR)

Posted by DanM(OR) on March 02, 2000 at 22:31:07:


I guess no one’s interested… - Posted by John Behle

Posted by John Behle on March 04, 2000 at 15:05:45:

That was just a fun quiz I was putting out for all. I’ll have to think of some prizes and bonuses to inspire people to crunch the numbers. The challenge wasn’t enough.

Ok, Ok ten bucks for the first person to figure it out correctly.

Test case… - Posted by Carol Kostic

Posted by Carol Kostic on March 03, 2000 at 15:14:17:

Herculette Poirot of zee calculator weel look at zees case zees evenink. But, in zee meantime, we sink zat zee writer of zee post has surely bean partaking of zee lost property of Monsieur Bert!

Re: Way to go Carol!! I am proud as a new pappa :slight_smile: (nt) - Posted by CarolFL

Posted by CarolFL on March 02, 2000 at 22:51:18:

Temper your pride, dude. The action has yet to follow! :slight_smile: However, each little “aha” in life is a giant step forward, in my book.

Thanks for caring.

maybe after boot camp - Posted by steph in tex

Posted by steph in tex on March 08, 2000 at 07:56:32:

i can figure this stuff out…

i want to understand it really bad… but i must be missing something- LIKE THE CALCULATOR!
amazing that i thought i could make the switch from houses to paper without one… nah- not really. just slow to make the move i guess…
please advise!
i’m out to get one today- which should i get? seriously- which is best?

John- do you promise this will all make since if i stick with it?
steph in tex

of course we are… - Posted by Carol

Posted by Carol on March 04, 2000 at 18:50:16:

however, I can’t find my dang calculator(poor excuse isn’t it)

We’ll refrain from reading any posts on the subject until one of us turns up one of them. I am absolutely red faced.

No, It Just Takes a While Longer on the TI (right, David?) - Posted by PeteH(NYC)

Posted by PeteH(NYC) on March 04, 2000 at 16:47:53:

Okay (pant, pant, pant) – here’s what I come up with:

The face value of the note today is $80K, so half that would be $40K, Ernie’s asking price for the first half of this challengingly uneven payment stream. First task is to figure out how long the entire payment stream will be, so we know how many payments half of them will amount to. On my TI, I was forced to calculate each year individually since the payment changed each year, and then move FV into the next year’s PV one year at a time. Turns out the loan will be fully amortized after 133 payments, the 133d payment representing a payoff amount of $1,123.85 (which includes one month of interest, at 0.7242%, on the previous month’s balance of $1,115.77).

Given that Ernie is a muppet and his fingers have difficulty manipulating the calculator keys, I’ve assumed that he’s selling his investor the first 67 payments for $40K.

The next part was tricky because of the changing interest rate, but what I did was calculate the PV of one year of payments, for each year because the payment changes every year, at the appropriate interest for that year. The first year’s PV ($5768.57)I set aside; subsequent years had to be double discounted – that is, since the notebuyer is WAITING some period of time for each year’s PV, that PV figure is effectively an FV today. Furthermore, years 3 through 5, and the seven payments from year 6, all had to be discounted at 8.69% back to the time when the notebuyer would be waiting two years at only 7.325% to receive those FVs – so they were effectively TRIPLE discounted. Whew!

It turns out that the present value of the sum of all those future values is only $36,242.30. So the buyer who paid $40K for that payment stream didn’t get much of a yield at all. And that’s how Oscar came not only to be known as “the Grouch,” but also to be living in a garbage can.

Re: maybe after boot camp - Posted by Carol

Posted by Carol on March 11, 2000 at 16:28:20:

Steph, I only had a HP 10b with me last summer, and it was not to my advantage … let Dennis use the 17b, figuring that I “wasn’t worth it”, and that I would let him figure it out.


Go girl. Get yourself a 17 or 19, and pin that puppy down!

See you in Park City!

Re: maybe after boot camp - Posted by John Behle

Posted by John Behle on March 08, 2000 at 13:21:46:

The example was just in fun. I just wanted to play with people’s brains that day. It was a very complicated example.

The good news is you won’t run into much in the market place that is any where near complicated to figure out. The good news too is that after the bootcamp, you will know how.

I HIGHLY recommend the HP17b or the HP19b. They function the same, there are just a few more capabilities with the 19. If not those two, by all means then, get an HP12C.

We will deal with IRR’s, NPV and uneven cash flow examples in the bootcamp and it will be very valuable to have a calculator that deals with them.

SO… Could the last half have more value than the first? - Posted by John Behle

Posted by John Behle on March 05, 2000 at 01:54:06:

Would 40k for the last half the payments be better? And - what’s the yield?

David’s TI just burned up… But you get $5 … - Posted by John Behle

Posted by John Behle on March 05, 2000 at 01:34:02:

First half is perfect. Second half is correct logic, but doesn’t give us the final yield - which as you pointed out is WAY TOO LOW. Actually less than the face rate of the note. Another illustration of how important the cash flow is in those first few years.

I wasn’t looking forward to calculating that one, but once I loaded up the spreadsheets it was quite easy. Used the “EasyCalc” spreadsheet to figure the amortization. Copied the 12 down the “N” colum. Put in the rate of 7.325 for the first two years and then 8.69 for the others. Copied 8.69 down the column.

After the original 80k in the PV, I changed the formula to copy the FV from the previous line (times -1.) Copied the formula down the column and raised the PMT $100 each year.

Once I had that I could tell how long it took to amortize. I also have a program that will do a graduated payment amortization, but I don’t venture into the DOS world much anymore.

Then, like you did, I took half the payments (67) and I have the cash flows. Put them into the “Uneven1” worksheet and fiddled with the yield until the NPV was zero. The yield would be just over 6.55% - which is as you pointed out - why he became Grouchy.

Sorry about the Sesame Street analogy. My boy is into that and I have watched WAY too much lately with him. If I ever use a Teletubby analogy - SHOOT ME.

Looking forward to boot camp and your course! - Posted by Jim-WI

Posted by Jim-WI on March 10, 2000 at 11:32:54:

Question about the calculator though… I’ve got one of them high powered engineering calculators with a finance card plugged in. It does your normal N, PV, FV, % interest, PMT and AMORt calculations… should I be investing in the HP19b to figuree IRRs et al. Geez… when was the last time an engineer did that calculation!!! Or even understood it!!! But I know I will understand it after July!


Re: maybe after boot camp - Posted by David Alexander

Posted by David Alexander on March 08, 2000 at 13:42:24:

Oh, come on now, :slight_smile: You know that when all is said and done My little ole TI-35 is sufficient for most deals, LOl. Although, I sure had to punch alot of numbers the other day to get to an answer. And even with a better calc I figure I still would have had to break out the spreasheet to get my brain around it.

David Alexander

Calculator is smoking… - Posted by David Alexander

Posted by David Alexander on March 05, 2000 at 20:11:49:

But, working just fine, although I admit I had to break out my excel spreadsheet for part of it.

Ok, my numbers are a little different than Pete’s but here they are.

I got $36,128.53 for the first half if you go all the way to full payments, I mean using 67 instead of 66.5, lol. So the yield could only come out to Not Good Enough, guess he should go ahead and buy a traffic sign ,he might have better luck with the appreciation.

The back set of payments are worth 36,242.14 and not a good investment currently, however, if a person were to wait and buy them at the 67th month your investment would be worth $49,899.44 the moment you buy the last half. You have all your money money back in just under 36 months and assuming you didnt reinvest the proceeds, NOT!.. You’d have an APR of 13.6%

David Alexander

P.S. Noteworthy was in town and had to go visit Lonnie, Joanne, and Robert.

Uneven Cash flows - Posted by John Behle

Posted by John Behle on March 10, 2000 at 21:05:59:

My guess from what you say is the calculator you mentioned would not handle uneven cash flows or IRR. It would be an extreme advantage to have a calculator with you that handles that. Even if it is a 12C or older. I saw one on eBay yesterday for $9 and have regularly seen them in the $40 range.

Ya, BUT… - Posted by John Behle

Posted by John Behle on March 08, 2000 at 14:16:35:

…If I told everyone they had to bring their computer, we’d crash the power grid of the hotel - maybe even the city. As those spreadsheets went wild crunching numbers even neighboring cities would have their lights dim.