92
votes
Investor Paradox. How can you calculate how much is a company worth when buying part of it changes the total value?
You are confusing investment in the company itself with purchasing shares of the company from another person.
In your example, the company has $1 worth of assets, and you have 100% of the company.
...
- 1,077
84
votes
Accepted
What is the correct answer for percent change when the start amount is zero dollars $0?
There is no numerical convention in finance that I have ever seen. If you look at statements or reports that measure growth when the starting value is negative or zero, you typically see "n/a" or "-" ...
- 140k
54
votes
Accepted
20% APR means only 10% interest? (UK)
The APR is the amount of interest that you would pay if you held their money for a whole year. If you borrowed the £100,000 for a year, didn’t pay anything until the end of the year, and then paid it ...
- 116k
54
votes
Investor Paradox. How can you calculate how much is a company worth when buying part of it changes the total value?
The important thing to always remember is that you must maintain a separation in your mind between you as individual(s) and the company. Think of the company as a box. Inside that box are assets (e.g. ...
- 2,523
41
votes
Accepted
Why does the TD Bank principal portion of a mortgage payment go up and down in sawtooth? (why is interest payment on annuity in arrears non-monotonic)
I'm fairly sure this is because they're including the fact that months aren't all the same length. This is obscured because they don't actually include the relevant dates with the results, or even ...
- 1,015
32
votes
Accepted
What does "not funded by you" mean in Vanguard's college savings planner?
One of the items on the left hand side is "% of cost you plan to cover" which you've set to 50%. So you're expecting that half the cost will be covered by someone else. That's the "...
- 27.9k
31
votes
Accepted
Why didn't the balance go down on the student loan after a big check?
The future interest is not yet a part of the balance you see, it will be added every month.
So next month, less interest will be added to the balance (compared to not paying that larger amount).
...
- 37.8k
31
votes
At 3% inflation rate, is $100 today worth $40 20 years ago?
$100 20 years ago is still worth $100 today. What changes is what that $100 can buy. Inflation is a measure of how purchasing power changes, and compounds over time.
So a better explanation would be: ...
- 140k
29
votes
Accepted
Why the calculated cost of a loan is less than expected? Is the bank working at a loss?
I expect the bank to receive exactly 1120 dollars at the end of the
loan (1000 * 112%). At least not including inflation. But the bank
receives nominal price of 1066.19 dollars (12 payments of $88.85),...
- 144k
28
votes
How to calculate car insurance quote
First you should understand the basics of how insurance companies make money:
In a simple scenario, assume 1,000 have car insurance. Assume that on average, 100 people have accidents per year, and ...
- 42.9k
27
votes
What is the correct answer for percent change when the start amount is zero dollars $0?
A value of zero or a negative value makes the percent change meaningless. Saying 100% when going from 0 to some other value is simply wrong.
I have seen a similar situation several times when looking ...
24
votes
Why isn't there a universal investment standard/benchmark?
Here are some (non-exhaustive) reason why different benchmarks are used, or why a constant benchmark is not optimal:
Returns are different in different time periods. In your golf analogy, par is ...
- 140k
22
votes
Formula like Kelly criterion for choosing how much of an investment to liquidate?
There is a simple answer: Look at your stocks and decide whether you would buy them now if you did not own them yet.
If your answer is "why should I pay this crazy price?", it is probably ...
- 7,462
21
votes
20% APR means only 10% interest? (UK)
Your mistake is that in your calculation of interest ("10%") you divided the total amount of interest paid by the original amount you borrow. However, you don't pay interest for the original amount ...
- 1,211
18
votes
Investor Paradox. How can you calculate how much is a company worth when buying part of it changes the total value?
tl;dr: You asked: Can someone help me understand this? No, because you understand it perfectly already! From a purely mathematical point of view on its own, the sharks are indeed ripping them off. (...
- 47.3k
17
votes
Paying extra on a mortgage. How much can I save?
Can I pay $12,000 extra once a year or $1000 every month - which option is better?
Depends when. If you mean 12K now vs 1K a month over the next 12 months, repeating this each year, now wins. If you ...
- 2,680
16
votes
Would the minimum payment or full CC amount be considered monthly debt?
You asked,
then which monthly debt payment should you calculate?
I think the only legitimate answer to this question is, "it depends" (on the context). Why are you doing this calculation and what ...
- 17.1k
16
votes
Accepted
Inflation and the current value of my dollar
Your $100 at t=0 will be worth $55.2 thirty years hence.
Something that costs $100 today will cost 100*(1.02)^30 = $181 30 years later. So your original $100 can purchase only 100/181 worth of goods ...
- 1,084
14
votes
Why isn't there a universal investment standard/benchmark?
"Why is it easy to set a standardized scoring metric for golf, and not for investments?"
Because golf is a sport standardized by various sporting bodies, to the extent that those bodies ...
- 42.9k
13
votes
Accepted
Time, money and probability: Should i sell my electric bike
Electric bikes are a newish thing, and with it you can expect technology to improve. Considering that, the tech in your current bike, even if new might be considered antiquated in 3 to 5 years.
...
- 78.5k
12
votes
Accepted
At 3% inflation rate, is $100 today worth $40 20 years ago?
Inflation diminishes value, so the older value would be greater, e.g.
At 3% inflation, 20 years ago $180.61 is today worth $100
100 (1 + 0.03)^20 = 180.611
and in 20 years $100 today will be worth $...
- 9,927
11
votes
Accepted
Thorough Description of Yield to Maturity?
What is a bond price? A bond is an asset, and like any tradeable asset it has a price. If I hold $10K face value of a certain GM bond, then I would be willing to sell it at some price, which may be ...
- 15.1k
11
votes
Accepted
How do I calculate the benefit of contributing to 401K vs paying off consumer debt?
Suppose $X goes to a 401K. After a year this grows to ~1.07 * $X.
Profit is ~0.07 * $X
Suppose rather that $X goes towards debt. I lose %25 to tax. I save
0.06 * %X on interest. Profit is 0....
- 70.8k
10
votes
Would the minimum payment or full CC amount be considered monthly debt?
which monthly debt payment should you calculate?
Since you are treating the CC as "slightly deferred spending" instead of "borrowing", I would not consider that as a debt payment.
(Note that I ...
- 50.8k
9
votes
Calculating interest for a loan made for a friend on a credit card
16.5% APR is a touch under 1.5% monthly (12th root of 116.5).
Assuming lump-sum repayment at the end of the period...
Your friend borrowed $3700, held it for 11 months, then repaid. $3700*(116.5^1/...
- 49.9k
9
votes
Cost of Living Adjustment
This site gives a cost-of-living index for major cities around the world. Cleveland scores 149, Boston scores 211 and Seattle scores 198. So dividing the salary on offer by the index, you'd be getting ...
- 23.5k
9
votes
What is the correct answer for percent change when the start amount is zero dollars $0?
I'd personally display "n/a" The only other answer that makes sense to me other is "infinity" (phone keyboard doesn't allow me to input the symbol). This would at least allow you to show direction by ...
- 191
9
votes
How to calculate car insurance quote
Does the Insurance value differ from state to state (for example I've a car in Hawaii and there is another car in Illinois with same model, make and same features), does the Insurance vary for both?
...
- 140k
9
votes
At 3% inflation rate, is $100 today worth $40 20 years ago?
Inflation means that the prices of goods and services are increasing. $40 is still $40 20 years later. However, because prices have increased 3% per year in your example, you cannot buy as many goods ...
- 633
8
votes
How does a monthly inflation rate work?
According to the link you provided, these inflation numbers are the year-over-year inflation amounts for a given month. For example the February number of 7% means from February 2015 to February 2016 ...
- 49k
Only top scored, non community-wiki answers of a minimum length are eligible