Posted by HankM on June 17, 1999 at 20:38:00:
You answered my second question with your first answer … is this “double discounting” … cause that’s what I thought too.
I understand and considered number three completely as well …
Number two though, never would have considered it in a thousand years …
thanks for the help!
Hank
Reverse partial calculation … - Posted by HankM
Posted by HankM on June 16, 1999 at 11:52:16:
I’ve never actually needed this before, but it may be a solution for a problem, the question is am I calcing it right. My thought is to compute the value of the partial as “usual” at my buy rate and then compute a PV on that value as if it were a balloon occuring at the time space of the proposed purchase.
EX:
Prin 100,000
Int 8% face
Term 360
Pmt 733.76
If I bought 60 pmts at 15%, I get $30,843.89; now if this is at origination and I’m actually buying payments 61-120, I’d discount the 30,843.89 as if it were a balloon with int=15%, pmt=0,term=61 and FV=30,843.89, giving $14,456.62
Am I thinking straight?
Thanks
Hank
All three answers - Posted by John Behle
Posted by John Behle on June 17, 1999 at 19:46:53:
All three methods will return answers of $14,637.23
Your figures could be off a little because the payment might not have been rounded in your calculator.
Three ways to do it - Posted by John Behle
Posted by John Behle on June 17, 1999 at 19:35:30:
There are three ways to do your example calculation. Your thinking is exactly how I figured out to do it many years ago. I called it the double discount. In those days the calculators could not handle “un-even cash flows”.
The second way to do it would be to calculate the value of the whole note, then the value of the first 60 payments. Subtract the value of what you didn’t buy (the first 60 payments) from the value of the whole note and what is left over is the value of the tail of the note.
The third way involves using the un-even cash flow functions of the calculator where you enter:
-0- Initial Cash flow
-0- Cash Flow one
60 Months
733.76 Cash Flow two
60 Months
Enter the desired yield and solve for NPV or Net Present Value.
Re: Reverse partial calculation … - Posted by David Alexander
Posted by David Alexander on June 16, 1999 at 14:21:44:
That’s it, although I get 30,843.30(then again I’m using my cheapo BA-35, calculator), and 14,456.53
Oh well, I guess if nine cents killed the deal, then I’d be in trouble anyway, LOL.
David Alexander