Posted by Mark Kohn (cone) on January 27, 2000 at 17:23:15:

Chris,

I’m a newbie myself. I use an HP 10B. It seems most of the guru’s are going to them (I’m guessing because they are cheaper and it doesn’t cost as much when they throw in a calculator for free.) I learned the basics of calculating yields by reading Lonnie Scrugg’s books (I actually knew a smidge about discounting before that). I have learned even more just by reading this forum.

Check out these articles by John Behle http://www.creonline.com/cashflow/wwwboard3/messages/5824.html

These helped me with Uneven Cash Flows and Partials.

You also might want to download John’s spreadsheets on www.papergame.com. One calculates yields and lets you compare different yields. The other calculates the yield of uneven cash flows.

If you need more material than that get Jon Richard’s course/book off this site. Or, if you are ready, get John Behle’s 5 Day Video Training Course (I just got this course last night – I scanned through it and I can see that it goes into all the details about discounting and yields (every which way). Yippee! Got to get back to studying Behle’s course.

Hope this helps.

Mark Kohn
Houston Texas

Posted by Chris on January 27, 2000 at 10:03:42:

Hi everyone. I’ve just read Lonnie’s Y2K article and I cannot figure these yields. If anyone could make this clear I would really appreciate the assistance.

To help you show where I am coming from please let me explain. I see that the 15% discount brings the cash payoff to \$3,060. 31% of \$3,060 comes to \$948.60 for a total of \$4008.60. I am looking at this from the angle that you need to make \$948.60 on \$3,060 to get a 31% yield. How is Lonnie getting the \$948.60?

This is over my head right now.

http://www.creonline.com/art-143.html is the complete article.

Here’s a neat little technique that’s worked well for me and allowed me to keep more money in my pocket. If you have any private notes you’re paying on, make your note holders this offer. (Probably won’t work with a banker.) For example, suppose you’re making somebody \$300 monthly payments. Offer to pre-pay the next 12 payments for a 15% discount. If your note holder says yes, you just made a little deal that’s paying you a 31% return.

Here’s how. \$300 x 12 = \$3,600, minus \$540 (15% discount) leaves \$3,060 that your note holder gets for the next 12 payments. This works out to be a 31% yield, and it hasn’t cost you anything. You just have to come up with the \$3,060. If you didn’t have the \$3,060, could you borrow it and pay 12%-15% if necessary and still make money?

I once made seven offers like this, and had four out of the seven accepted. If your note holder won’t agree to 15%, try for 10% and you still have almost a 20% return. Or six payments for a 10% discount, would give you a 37% return. This is a good time of the year to make such offers. Christmas is over, tax time is coming, and folks need money to pay for both.

-Thanks, Chris

I hope this helps. - Posted by Mark Kohn (cone)

Posted by Mark Kohn (cone) on January 27, 2000 at 11:19:48:

Chris, the original payment plan looks like this:

N:12
I:0
PV:3600
PMT:-300
FV:0

Notice the interest rate is zero.

Solving for the yield of the 15% discount looks like this (3060 is 3600 minus \$540, \$540 is 15% of 3600):

N:12
I:??
PV:3060
PMT-300
FV:0

Solving for “I” on your financial calculator displays 31.12, this is Lonnie’s 31% yield.

Does this help any? Or, just muddy the waters?

Mark Kohn
Houston, Texas

Re: I hope this helps. - Posted by Chris

Posted by Chris on January 27, 2000 at 12:12:20:

Mark-

Yep, I got the same number thanks to you. I was making this harder than it is. I did not think that the I would always be 0.

I paged through my financial calculator(Texas Instruments BA II Plus) instruction manual and could not figure this out. The only thing I could find on Yields had to do with bonds and made no sense to me.

It was as simple as using the mode that I use to figure out mortgage amortization calculations and substituting in a new PV after computing out the original figures. Cool!

I know most pros recommend the HP-12 series of financial calculators. I think this TI model works pretty good-it is just the instruction manual that confuses me.

Would you please recommend some good starter books on becoming familiar with the lingo that is thrown around as far as note discounting? A good book/course on getting me up to speed with a financial calculator would be great.

-Thanks for the mini course, Chris