The Mathematics of Personal Finance: A Complete Reference

by Lutz, Donald E.

• ISBN13: 9781583483787
• ISBN10: 1583483780
• Format: Paperback
• Copyright: 1999-06-01
• Publisher: Textstream

Author Biography

Donald E. Lutz retired as a Principal Engineer and a Unit Manager in General Electric's Advanced Nuclear Technology Operation in San Jose, California. After studying engineering economics and applying it professionally, he took up personal financial mathematics and economics as a hobby. A registered professional engineer in the states of California and Illinois, he holds a degree in mechanical engineering from Michigan State University.

Table of Contents

Preface	ix
Acknowledgments	xiii
Part One The Basics of Financial Math
Why You Need to Know Financial Math	3	(6)
Do You Need to Brush up on Financial Math?
What Is Financial Math?
What Is in This Book and How to Use It
A Little Math Goes a Long Way	9	(18)
Calculating Percentages
Solving Simple Algebraic Formulas
Unit and Ratio Analysis
Significant Digits and Rounding
Cash Flow Diagrams
Interest: The Time Value of Money	27	(18)
What Is Interest?
Kinds of Interest
Calculating Interest
The Rule of 72
Some Final Remarks About Interest Calculations
Compounding: A Way to Grow Money	45	(16)
What Is the ``Magic of Compounding''?
How to Calculate Compound Growth of Money
What Are Nominal and Effective Interest Rates?
The Advantage of a Greater Number of Compounding Periods
Now the Rest of the Compound Interest Formulas	61	(24)
The Payment Modes
Uniform Payment Compound Interest Formulas
Erroneous Use of the Sinking Fund Formula
The Generalized Compound Interest Formula
Present Value: A Different Way Of Financial Thinking	85	(20)
What Is Present Value?
The Principle of Equivalence
Comparing the Present Value of Alternatives
What Is Capitalization?
Discounted Cash Flow Analysis: Net Present Value
Discounted Cash Flow Analysis: Internal Rate of Return
Graphical Representation of Net Present Values
Using Compound Interest Tables	105	(14)
Some Caveats About the Use of Compound Interest Tables
Future Value of a Single Payment
Present Value of a Single Payment
Future Value of an Annuity Due
Present Value of an Annuity Due
Present Value of an Ordinary Annuity
Uniform Payments to Amortize a Loan
Quick-Start the Hewlett-Packard HP-12C Financial alculator	119	(22)
General Use of Hewlett-Packard Calculators
Configuration of the HP-12C Financial Keys
Calculating Single Payment Present or Future Values
Calculating Annuity Due Series of Payments
Calculating An Ordinary Annuity Series of Payments
Calculating a Balloon Payment
Calculating the Number of Compounding Periods
Calculating Interest Rates of a Series of Payments
Discounted Cash Flow Analysis: NPV and IRR
Calendar Functions
Part Two Applications of Financial Math
How to Calculate Rate of Return on Investments	141	(28)
The Terminology of Investment Performance
Calculating the Rate of Return of a Single-Payment Investment
Converting a Gain to an Annual Rate of Return
Calculating the Rate of Return of a Uniform series of Payments
The Modified Internal Rate of Return
How to Calculate the Rate of Return of Common Stocks
How Mutual funds Report annual Income and How to Calculate
Your Rate of Return
Leveraging: Win Big or Lose Big
Turn Income Taxes to Your Advantage	169	(20)
What Is Income Tax Avoidance?
How Tax Deductions Save Money
How to Determine Marginal Income Tax Rates
Calculating Tax-Equivalent Yields
Using Tax-Equivalent Formulas for Financial Planning
Are Tax-Free Municipal Bonds Appropriate for You?
Tax Avoidance Planning
What Inflation Does to Your Financial Life	189	(18)
Effects of Inflation on Income
How to Calculate Real Income
How Well Does the Stock Market Keep up with Inflation?
The Effect of Inflation on Your Financial Planning
Analyzing Corporate Bonds	207	(22)
What Causes Bond Price Volatility?
Initial Public Offering (IPO) of Bonds
Interpreting Bond Quotations
Analyzing Bond Yields
Calculating the Changes of Bond Prices in Response to marketplace
Interest-Rate Changes
The Yield Curves
Strategies for Buying Bonds on the Secondary Market
Is It Advantageous to Take Capital Gains in a Decreasing Interest Rate Bond Market?
Analyzing U. S. Government Securities	229	(24)
U.S. Treasury Bills
T-Bill Prices and Yields on the Secondary Market
Treasury Notes and Bonds
Government National Mortgage Association (GNMA)
Zero-Coupon Bonds
Analyze Your Home Mortgage and Save Money	253	(24)
What Is the Annual Percentage Rate?
How to Compare a No-Points vs
a Points Loan
When Is It Advantageous to Refinance?
The Conventional Fixed-Rate Mortgage
How to Save Money on Your Mortgage
Should You Pay Down Your Mortgage?
The Adjustable Rate Mortgage (ARM)
What Is Negative Amortization?
Balloon Payments
The Reverse Annuity Mortgage (RAM)
The Biweekly Payment Mortgage: A Gimmick
Tax-Deferred Annuities and Retirement Options	277	(22)
What Are Annuities?
When Should You Buy a Tax-Deferred Annuity?
Annuity Payment Options
Analyzing a Tax-Deferred Variable Insurance Annuity
Tax-Deferred Variable Annuities vs
Taxable Mutual Funds
Analyzing Typical Annuitized Payment Plans
Should You Annuitize or Take Systematic Payments?
How Rates of Return Influence Systematic Cash-Withdrawal Programs
How to Analyze Life Insurance Policies	299	(16)
Methods for Analyzing Life Insurance Policies
Analyzing a Guaranteed Life Insurance Policy
An Interest-Sensitive Whole Life Policy with Vanishing Premiums
Consider Inflation Effects When Planning Your Insurance Needs
How to Make Financial Trade-Off Decisions	315	(16)
Buy or Lease That New Auto?
Buy a New or Used Car?
Keep or Repair That Inefficient Appliance?
Replace Your Existing Air Conditioner with a New, More Efficient Unit?
A Choice of Payment Plans
Consumer Credit and Loans	331	(16)
Federal Regulation Z: The Truth-in-Lending Act
Credit Card Revolving Loans
Installment Loans
Home Equity Loans
The Discounted Loan
The Rule of 78: Avoid It
Using Computer Spreadsheets for Financial Calculations	347	(14)
The Worksheet
Writing Mathematical Formulas
Relative and Absolute Cell Addressing
Using Built-In Financial Functions
Creating a Worksheet with Formulas and Built-In Functions
Appendix: Compendium of Formulas	361	(8)
Glossary	369