How the heck does 'interest' work anyhow??? - Posted by Ruben

Posted by Jeff on February 03, 2001 at 14:20:10:


How the heck does ‘interest’ work anyhow??? - Posted by Ruben

Posted by Ruben on February 02, 2001 at 22:40:52:

Howdy folks,
I just received Lonnie’s MH books today…BUT…I’m having a TIME figuring out how INTEREST works. I’ve NEVER got it! I’ve searched the web, even for kid’s sites to explain it, to no avail! I know that simple interest is $1000 @ 8% interest for a year is $1080. But how does one calculate a $4,000 deal at 12.75% to end up at $7,500 (or whatever) after 36 months. Do you add the 12.75% to each month’s equal payment that adds up to $4,000 divided by the 36 months and THEN add the 12.75% on TOP of that? Obviously, I’m LOST!!! Thanks in advance for your help! I’m looking forward to interacting with this great bunch of people!

Re: How the heck does ‘interest’ work anyhow??? - Posted by joe --ga

Posted by joe --ga on February 03, 2001 at 19:47:05:

Interest rate web site. I ran across it today … Its o.k.

Its real easy… - Posted by Marc Donovan FL

Posted by Marc Donovan FL on February 03, 2001 at 14:09:40:

The interest paid for each time period is the annual interest rate divided by the number of periods per year times the remaining balance. Example: 12% interest on a balance of 10,000 with payments of $300 per month. The first payment is 1% (12% per year / 12 months) times the balance of 10,000 which gives an interest amount of $100. The other $200 reduces the principal to $9,800. The next payment is 1% of 9,800 or $98 interest. The remainder of (300-98) 202 reduces the principle to (9,800-202) $9,598. And so on until the last balance is 0.

You could set this up in a spreadsheet and you can do almost any type of what if scenario.

When you want to start computing yields go look at my web page that explains it:

If you have a spreadsheet, it has a built in financial calculator. Look at the financial functions. In Excel its PMT PV NPER FV RATE. If you know four of these values, you can compute the fifth one.

Re: How the heck does ‘interest’ work anyhow??? - Posted by Jeff

Posted by Jeff on February 03, 2001 at 09:31:08:

Get yourself A Hewlett-Packard HP12-C Financial calculator and your problem will be solved

Re: How the heck does ‘interest’ work anyhow??? - Posted by Ruben James

Posted by Ruben James on February 03, 2001 at 22:02:17:

Thank you, Joe. I bookmarked it to use for fast calculation until I get that HP-10 or 12!

NOW… I “Get It” !!! - Posted by Ruben James

Posted by Ruben James on February 03, 2001 at 14:46:51:

Marc…THANK YOU!!! NOW I “Get It!” That is EXACTLY what I’ve been looking for! I went to your website and put it in my “Favorites” so I will be going there often until I fully understand the concept! Thanks again!

Math the “Old Fashioned Way” - Posted by Ruben James

Posted by Ruben James on February 03, 2001 at 12:50:05:

Thank you, Jeff. I will DEFINATELY do so when I’m up and running. In the meantime, I believe in what my dad taught me many years ago…First be able to do the math in long-hand…THEN, check it with the calculator…That way, you KNOW how to do it and “how it works” which is the important thing. Could you explain it “in long-hand”? Thanks!

Old Fashioned Math" - Posted by Dave Swett

Posted by Dave Swett on February 03, 2001 at 14:11:06:

I read your latest post about doing the math by hand and I think you missed a major point that the other gentleman was trying to make. The HP-12 calculator has one of the best time value education books that I have ever seen. If you purchased the calculator you would get the book and then work thru the problems with your new calculator.

I am an ex-engineer and the HP-12 system worked fine for me to learn time value of money–but that was many years ago. The HP-12 uses reverse polish notation and that is a major learning block for most users. You are trying to learn new technology about interest, yields and time value and you don’t want to compound the learning curve by having to learn to use a funny calculator.

I recommend a beginner use the HP-10 at a cost of $40 that uses algebraic notation–much more logical and easier for most people. Another easy machine is the Texas Instruments’ “business Analyst”.

Putting the machine question aside for a minute to allow the focus on the more important point of learning the technology, I feel that Jimmy Napier’s book on time value is one of the best on the market. The examples and technique flows almost right along with Scruggs’ book. I do not believe that CRE sells his book, but at a cost of $30, he discusses in real easy to understand language (similar to Lonnie Scruggs books)how to understand yield (interet) and money’s time value. My book’s info page shows him at Box F, Chipley, Florida 32428 with a toll free telephone of 800-544-4488.

To graduate from being a consumer working with depreciating assets to an investor who works with appreciating assets, you have got to understand time value. The math is so complex, you need the calculator to do the nasty number crunching so that you can focus on analyzing the deal to make money.


Re: Old Fashioned Math" With New Technology! - Posted by Ruben James

Posted by Ruben James on February 03, 2001 at 14:50:16:

Thank You, Dave! Thank you for the full explaination of the need for the calculator! I now understand why I need the HP-10 or 12. I WILL buy one!