Financial Math Basics
« Previous EntriesIf You’re Going to Pay Extra on a Loan, Do it Sooner Rather Than Later
Friday, July 18th, 2008The other day I was looking at the amortization for the loan I took out to buy our 2007 Honda Civic. The balance on the loan is now below $10,000 and I immediately thought about paying more on the loan just to get it paid off earlier.
But then I noticed something that [...]
Common Questions - How Much Do I Need to Save for Retirement?
Sunday, April 20th, 2008The other day I asked the following questions in a “Question of the Day” post:
In your opinion, what’s the most confusing aspect of personal finance?
What area gives you the most trouble?
Several commenters stated that they had problems with trying to determine how much they needed to save for retirement.
That’s a tough question for a variety [...]
Probability 101
Friday, April 11th, 2008I’m in the process of reading Peter Bevelin’s awesome book, Seeking Wisdom - From Darwin to Munger (Not an Affiliate Link). I HIGHLY recommend this book for anyone interested in investing and behavioral finance. As boring as that sounds, this book is a page-turner.
One of the sections of the book that I found [...]
What a Loan with a 171.54% APR Looks Like
Sunday, March 16th, 2008How to calculate APR using Microsoft Excel or a financial calculator.
I recently heard about a loan company that specializes in short-term loans. Here’s a typical example of a loan that this company offers:
Loan Amount: $1,250
Loan Term: 36 bi-weekly payments (72 weeks)
Payment Amount: $91.66
Total Payments: $3,299.76 ($91.66 × 36 = $3,299.76)
Total Interest: $2,049.76 ($3,299.76 – [...]
A Look at Publishers Clearing House’s “$5,000 a Week For Life” Giveaway
Monday, January 7th, 2008Publishers Clearing House is currently advertising a promotion where people can win $5,000 per week for the rest of their lives. Sounds pretty good doesn’t it? But, how good is it really?
Lets take a look at the numbers using my age (38) as the basis for the calculations. If I’m lucky enough [...]
The Mathematics of Overcoming Negative Returns
Saturday, January 5th, 2008My last post got me to thinking about the mathematics involved in overcoming negative returns. In that post, I mentioned that 15 of the ETFs listed in the Wall Street Journal are down over 10% so far in 2008 (and that’s after just 3 days of trading!).
If a stock goes down 10%, it takes [...]
How Much Mortgage Can You Realistically Afford?
Friday, December 7th, 2007In light of all the silliness that went on in the mortgage market over the last few years, I thought it would be a good idea to write a post that focuses on how big a mortgage people can actually afford. It’s obvious from some of the articles I have highlighted over the past [...]
Reader Question: How Do You Calculate Compound Growth (or Interest)?
Monday, November 19th, 2007Frank left the following comment in my Turning $1,000 Into $1,000,000 Post:
Great information! Can you publish your formula for these tables? I would love to know what’s going to happen if I put $2000– or $5000 per year into my retirement fund.
Certainly, Frank!
I simply used the RATE function in Excel, which is found in the [...]
Reader Question: Should I Pay Off My Car Loan Early?
Sunday, November 11th, 2007Here’s a recent email (edited slightly) I received from a reader regarding whether or not to pay off a car early:
Hello,
I am wondering if you can help me out with some investment math. I can’t tell if i’m doing something wrong, but I’m too close to the data to see it. here’s the question -
I [...]
Fun Math: How to Calculate Returns Using Monthly Data
Monday, October 1st, 2007Do you know how to calculate the year-to-date return on the S&P 500 Index using monthly returns?
No?
Well, it’s easy and fun and I’ll show you how. There may be another way to do this but this is the way I know how to do it.
First off, we need the monthly returns for the S&P [...]