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In Need Of Help With Finance Homework Part 2
- Thread starter TheShooter
- Start date
i havent been in school in a long time, but the questions are fairly basic. is this an entry-level finance class? simply think in terms of yield and discounting to NPV. on an HP-12C you have NPV, FV, i (interest) and n (periods). in the first one you are calculating yields on 2 investments. just do it. then, you discount the cashflows and reversions back at 6% and then 12%. straight forward. by the way, think what would happen if you were buying the investments back at YOUR required yield!
the next one was the $900 security. first, just sit back and think - you are getting $50 annual cashflow on $900, or 5.56% and the reversion is $150 more than the $900 (PV) or 16.67% (ignore compounding for now - the period is rather short). so you can probably guess that given the 5.56% cashflow and 5.5% (+/-) annual appreciation, you can see that the security (assuming similar risk profile) is probably a superior investment to the 8% annual yield on the savings account.
the last one is just calcualting interest with a "twist" on the amortization.
again, im an old fart (47 yrs) that is a long way out of college, but i can tell you these types of questions are excellent if you want to buy mortgage notes, invest in real estate, etc. apply yourself now, and the rest will be easier. my 10 yo and 13 yo can calculate basic payments, NPV, FV and yield. most people cant come close to working a financial calculator. dont give up!
good luck,
scott
edit: i just read your angry response. just set up the problem into initial investment (-NPV)/cashflow-payments/FV; and solve for i (interest/yield). BTW, i never took a finance class, but i think my approach is right. believe me, you can really use this stuff.
here's real world: stupid realtor carries their $15,000 commission as a 2nd Turst Deed at 10% interest only, monthly payments. then realtor cant make payments on the benz or leased, oceanfront condo; so he is forced to sell you the note for $12,000 (a day or so later). your yield approaches 19% (NPV = -$12,000/FV = $15,000/PMT = $125/n = 36/solve for i). i = 18.95%.
now, you go to the homeowner and say: if you pay the note off in 2 years i will cut the interest to 9%(i only/monthly). solve for yield. NPV = -$12,000/FV = $15,000/PMT = $112.50/n = 24/solve for i. i = 21.56%. pretty good yield on 2-year investment that is collateralized by real estate! certainly better than originating the note!
the next one was the $900 security. first, just sit back and think - you are getting $50 annual cashflow on $900, or 5.56% and the reversion is $150 more than the $900 (PV) or 16.67% (ignore compounding for now - the period is rather short). so you can probably guess that given the 5.56% cashflow and 5.5% (+/-) annual appreciation, you can see that the security (assuming similar risk profile) is probably a superior investment to the 8% annual yield on the savings account.
the last one is just calcualting interest with a "twist" on the amortization.
again, im an old fart (47 yrs) that is a long way out of college, but i can tell you these types of questions are excellent if you want to buy mortgage notes, invest in real estate, etc. apply yourself now, and the rest will be easier. my 10 yo and 13 yo can calculate basic payments, NPV, FV and yield. most people cant come close to working a financial calculator. dont give up!
good luck,
scott
edit: i just read your angry response. just set up the problem into initial investment (-NPV)/cashflow-payments/FV; and solve for i (interest/yield). BTW, i never took a finance class, but i think my approach is right. believe me, you can really use this stuff.
here's real world: stupid realtor carries their $15,000 commission as a 2nd Turst Deed at 10% interest only, monthly payments. then realtor cant make payments on the benz or leased, oceanfront condo; so he is forced to sell you the note for $12,000 (a day or so later). your yield approaches 19% (NPV = -$12,000/FV = $15,000/PMT = $125/n = 36/solve for i). i = 18.95%.
now, you go to the homeowner and say: if you pay the note off in 2 years i will cut the interest to 9%(i only/monthly). solve for yield. NPV = -$12,000/FV = $15,000/PMT = $112.50/n = 24/solve for i. i = 21.56%. pretty good yield on 2-year investment that is collateralized by real estate! certainly better than originating the note!
BNPCM,
It was meant as no offense to you or others who know where I am coming from. Those guys stepped over the line of civility when they took cheap shots at me for asking the questions. If that's how they feel then I don't want their help. I'd much rather get a helping hand from someone who's been there before. At any rate, thanks for the honest response.
By the way, these problems are from a graduate level course.
It was meant as no offense to you or others who know where I am coming from. Those guys stepped over the line of civility when they took cheap shots at me for asking the questions. If that's how they feel then I don't want their help. I'd much rather get a helping hand from someone who's been there before. At any rate, thanks for the honest response.
By the way, these problems are from a graduate level course.
TheShooter,
Easiest way to conceptualize cash flow problems is to map out the cash flows how they fall on a timeline, and then use the appropriate formula (pv of series, lump sum, etc.) to bring the value to the present or the future, whatever you're solving for. And also do it in logical pieces. If you're receiving $1,000 in a series of payments over 5 years and a $10,000 lump sum at year 6 then write it down on paper like this:
1 2 3 4 5 6
1,000...1,000...1,000...1,000...1,000...10,000
Then use the PV of a series formula to solve for years 1-5 and the PV of a Lump sum for year 6, then add them together to get the total present value of the cash flow.
No matter how complicated they make it, you can piece it together logically, and then solve it in pieces.
Easiest way to conceptualize cash flow problems is to map out the cash flows how they fall on a timeline, and then use the appropriate formula (pv of series, lump sum, etc.) to bring the value to the present or the future, whatever you're solving for. And also do it in logical pieces. If you're receiving $1,000 in a series of payments over 5 years and a $10,000 lump sum at year 6 then write it down on paper like this:
1 2 3 4 5 6
1,000...1,000...1,000...1,000...1,000...10,000
Then use the PV of a series formula to solve for years 1-5 and the PV of a Lump sum for year 6, then add them together to get the total present value of the cash flow.
No matter how complicated they make it, you can piece it together logically, and then solve it in pieces.
OH, YOU GOTTA BE KIDDING ME!!! I just finished teaching a section of the intro freshmen level finance and a section of the senior level investments. Dude, those ARE intro level problems
If it is a grad level course, then you should reconsider the sensibility of having picked that school
There is NO way you could not possibly get answers to those problems by reading the book. Even if you have not had a single class in finance. I think you are a bit lazy. If you honestly are struggling with those, I'll solve them for you. But IMHO, you should not trade if you can't do even such basic stuff. Otherwise it's like driving a car without knowing what's going on inside the engine when you are shifting gears (I don't consider cars with automatic trasmissions to be cars
). You might get from point A to point B, but you'll never really enjoy it as much or do it as fast if you don't understand how the engine works.If I have a minute after I eat lunch in a sec, I'll solve those prob's for ya. By the way, if you bought the financial calculator - take it back to the store for a refund. I'm finishing up my PhD in finance, and I never owned one. I also never have my students buy them. You need to understand how to solve the problems and why they need to be solved that way, instead of just pushing the PV, FV, i, n buttons....
i can see the wisdom in using discounting factors/tables for a few problems, but not utilizing a financial calculator in a graduate level finance class seems a bit extreme (although i have never had one, i think they are probably pretty hairy). i think the example i gave of the $900 security is quite valid. first, just stand back and use common sense, then calculate the exact yield or NPV. then utilize the calculator. as you suggest, understanding the function keys is a must, but not utilizing the calculator is a bit much.
regards
regards