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TitleThe Personal Finance Calculator : How to Calculate the Most Important Financial Decisions in Your
Author
LanguageEnglish
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Total Pages305
Table of Contents
                            Cover
Contents
ACKNOWLEDGMENTS
INTRODUCTION
PART ONE Assessing Your Current Wealth
	#1 How to Determine Your Net Worth
	#2 How to Determine a Cash In.ows and Out.ows Statement
	#3 How to Formulate a Budget
	#4 Time Value of Money and What It Can Do for You
	#5 Simple Interest and How to Calculate It
	#6 Compound Interest and How to Determine Future Value
	#7 What You Need to Know About Nominal Versus Effective Interest Rates and How to Calculate the Effective Rate
	#8 Present Value and How to Calculate It
	#9 Annuities and How to Calculate Them
	#10 How to Determine the Amounts Needed to Fund Your Objectives
	#11 How to Reconcile Your Checking Account
	#12 How to Prepare Your Records for Your Tax Accountant
PART TWO Managing Your Personal Wealth¡ªDebt
	#13 Determine Your Debt Capacity
	#14 How to Determine the Best Source of Credit
	#15 How to Determine the Annual Percentage Rate Costs of Using Credit Loans
	#16 How to Determine the Rate of Interest on Your Credit Cards
	#17 How to Manage Your Debt
	#18 How Much of a Mortgage Can You Afford?
	#19 How to Calculate Your Monthly Mortgage Payment
	#20 How to Determine Your Mortgage Balance
	#21 Determine Your Mortgage Balance When Additional Principal Payments Are Made
	#22 Adjustable Rate Mortgages and How They Work
	#23 Which Type of Mortgage Should You Choose?
	#24 When Should You Re.nance Your Mortgage?
	#25 Should You Rent or Buy a House?
	#26 What You Should Know About Leasing a Car and How a Lease Works
	#27 Should You Buy, Lease, or Finance Your Car?
	#28 How to Create a Simple Interest Loan Schedule
PART THREE Managing Your Personal Wealth¡ªInvestments
	#29 Determine Your Investment Objectives
	#30 Determine Your Risk Tolerance
	#31 How to Allocate Your Investments
	#32 How to Determine Your Equity Style in the Selection of Individual Stocks
	#33 How to Determine Which Types of Bonds to Buy for a Portfolio
	#34 How to Rebalance Your Portfolio
	#35 The Rule of 72 and How to Use It to Determine How Long It Will Take to Double Your Money
	#36 How to Assess and Balance Risk and Return in the Choice of Different Investments
	#37 How to Calculate a Simple Rate of Return for Stocks and Bonds
	#38 How to Determine a Rate of Return for a Mutual Fund
	#39 How to Determine the Yield on Treasury Bills
	#40 How to Determine the Purchase and Selling Price of Treasury Bills
	#41 How to Buy and Sell Treasury Securities Directly from the Federal Reserve
	#42 How to Convert Municipal Bond Yields to Before-Tax Yields
	#43 Duration and How It Can Help You in the Choice of Bonds for Your Portfolio
	#44 How to Value Bonds
	#45 How to Value Common Stock
	#46 How to Determine the Growth Rate of a Stock
	#47 How to Analyze and Evaluate Your Common Stocks
	#48 How to Choose a Mutual Fund
	#49 How to Determine the Tax Consequences of Buying and Selling Shares in a Mutual Fund
	#50 How to Determine the Average Cost in Dollar Cost Averaging
PART FOUR Planning for Your Future
	#51 How to Determine Your Future Financial Needs and How to Fund Them
	#52 How to Determine How Long Your Money Will Last in Retirement and the Amount of the Payment in a Systematic Withdrawal Plan
APPENDICES
INDEX
                        
Document Text Contents
Page 2

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Page 152

Managing Your Personal Wealth—Debt 139

Should you finance your car or lease it? In general, it is cheaper to finance

the purchase of a car than to lease. The reason is because a lease payment

includes an amount for the depreciation of the car plus an amount for the

financing of the car by the dealer plus the sales tax. The finance charge builds

in a rate of interest, which is typically quite high. However, there are excep-

tions, particularly when the auto manufacturers are saddled with a glut of cars.

To move them, they will offer special low lease rates. By working through

Worksheet 27.4, you will be able to determine whether it is cheaper to lease

or finance.

Leasing a car often turns out to be more costly than financing a car,

even though the monthly payments on a closed-end lease are less than the

monthly payments to finance the car. In a closed-end lease, you have rented

the car for the lease period. If you were to buy the car and finance the pur-

chase, you would pay the entire purchase price plus the interest expense. How-

ever, if you keep the car in relatively good condition, you can sell the car at the

end of the same period, and the net outlay for financing generally will be

less than the net outlay for leasing.

WORKSHEET 27.2 Comparing interest rates to determine whether to finance or
pay cash for a car

Cash Finance

Interest rate forgone on cash payment _____________
After-tax rate of return

(1 − marginal rate) × interest rate _____________ APR _____________

Compare the cash rate and the finance rate.

If the cash rate is higher, it is cheaper to finance the purchase of the car and
to invest your cash.

If the finance rate is higher, it is cheaper to pay cash for the purchase of
the car.

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Page 153

WORKSHEET 27.3 How to determine whether to take a cash rebate or special
low-rate financing

Example: Should you choose the $6,000 cash rebate or the 2.9% financing?

Example Your worksheet

Cost of the car with the rebate

Vehicle price $36,000 ____________
Less manufacturer’s rebate 6,000 ____________

Net cash cost 30,000 ____________
Interest income forgone on cash

(3% of $30,000 for 3 years) 2,790 ____________
Less taxes on interest income

(30% marginal tax bracket) (837) ____________

Total cash cost of purchase $31,953 ____________

Cost with 2.9% financing

Vehicle price $36,000 ____________
Less down payment 3,000 ____________

Amount to be financed 33,000 ____________

Interest forgone on down payment
(3% of $3,000 for 3 years) 279 ____________

Less taxes (30% marginal tax bracket) (83.70) ____________
Monthly payment $958.23 × 36 34,496.28 ____________

Total cost using financing $37,691.58 ____________

2 (073-146) part ii 1/31/03 9:32 Page 140

Page 304

return on, 248–49
tax consequences of buying

and selling shares in,
254–58

N.A.D.A. Official Used Car Guide, 5
negative amortization, 116
net asset value (NAV), 190, 191, 192, 248
net cash flow, 11
net profit margin, 234
net worth, 3, 6

determining, 3–5, 6–8
increasing, 7

new loan balance, of simple interest
loan, 144–45

no-load mutual funds, 250, 251
nominal interest rate, 31
noncompetitive bids, on Treasury bills,

201, 205–6

open-end lease, 131
operating profit ratio, 233
ordinary annuity, 38

future value of, 38–40
determining future value

of, using a computer, 44–46
determining future value of,

using a financial calculator,
42–43

determining present value of, using a
computer, 48–49, 52

determining present value of, using a
financial
calculator, 48

present value of, 46–47

payment caps, 116
payroll tax deductions, 10, 14
P/E (price/earnings) ratios, 166, 236–40
pension funds, determining

value of, 5
periodic rate, 90
personal balance sheet, 7
personal effects, determining

value of, 5
personal finance software programs, 12,

28, 107. See also computer
programs; Microsoft Money;
Microsoft’s Excel spreadsheet;
Quicken software

portfolios. See investment portfolios
precomputed interest method, for

computing the APR of installment
loans, 85

present value (P), of money, 33
using a computer to determine, 35–37

using a financial calculator to
determine, 35

using financial tables to determine,
34–35

price/earnings (P/E) ratios, 166, 236–40
price-earnings to growth ratio,

242, 245
price-to-sales ratio, 242
principal amount

in calculating compound interest,
23–24, 25

in calculating simple interest, 22–23
principal reduction

in paying mortgages, 111–14
in simple interest loans for car

financing, 144
profitability, 232–35

quality, of bonds, 171
Quicken software, 12, 28, 67–68
quick ratio, 230–31

rate of interest, 22
on credit cards, 90–94

rate of return
and assessing and balancing

investments, 180–85
for mutual funds, 190–93, 248–49
for stocks and bonds, 186–89, 221
and risk, 183–85, 217–18, 255
rule of 72, 179–80
of Treasury bills, 193–96

real estate investment trusts (REITs),
240, 241

rebates, manufacturer’s, 136, 137, 140
refinancing, a mortgage, 125–26
REITs (real estate investment trusts),

240, 241
renting, versus home ownership, 127–31
residual value, 132
retirement, saving for, 54
return on common equity ratio, 235
return on equity ratio, 234–35
risk-return relationship, 183–85, 217–18,

255
risk tolerance

and assessing investments, 180–85
in bond investing, 171
in choosing a mortgage, 122

determining, 152–57
rule of 72, 179–80
Russell 200 Index, 165

salary, 10, 14
sales tax, in monthly lease

payments, 134

Index 291

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Page 305

Securities and Exchange Commission
(SEC), 248

self-employment, and payroll tax
withholdings, 14

short-term bonds, 172
simple interest, 22–23

for single-payment loans, 82, 83
simple interest loans, for financing a car,

142–45
simple interest method, for computing

the APR of installment loans, 85,
87–88

single-payment loans, 82–84
small-cap stocks, 165, 166, 167, 169
special low–interest rate loans, 136,

137, 140
speculative stocks, 181, 184
Standard & Poor’s (S&P) 500 Index,

167, 237
stock market, 165–69, 181, 187–88, 238

and mutual funds, 246, 248
stock portfolios. See investment

portfolios
stocks, 5, 57, 158, 159

blue-chip, 181
classifying, 165–66
common, 153–54, 181, 220–25,

229–45
determining rate of return on, 186–89
determining growth rate of, 226–28
and dollar cost averaging, 259–62
growth, 166, 168, 169, 184
income, 184
large-cap, 166, 167, 169
management style of, 168
mid-cap, 166, 167, 169
small-cap, 165, 166, 167, 169
speculative, 181, 184
value, 166, 168, 169

surplus
determining, 18
in cash net cash flow, 11

tax accountant, preparing records for,
68–72

tax records, 68–69
tax returns, 69
tax reporting, and mutual funds,

254–57
teaser rates, 115
1099 forms, 68
time-frame

for financial goals, 55
for investments, 149–50

time value of money, 17, 20–22
and calculating rate of return for

stocks and bonds, 186–87
and determining duration of bonds,

212–13
times interest earned ratio, 236
Treasury bills (T-bills), 182, 183

buying and selling, from the Federal
Reserve, 201–7

determining purchase and selling
price of, 197–99

determining yield on, 193–96
Treasury bonds and notes, 172, 182,

209, 217
Treasury Direct program, 193
12 (b)-1 fees, 252

U.S. Treasury bills. See Treasury bills
U.S. Treasury bonds. See Treasury bonds

and notes

value investing, 166
Value Line, 237
value stocks, 166, 168, 169
variances, 18, 19

wage earner’s plan, 98
wages, 10, 14
Weiss, Geraldine, 241

yield
on dividends, 241
on mutual funds, 248–49

zero-coupon bonds, 173, 215

292 Index

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