Comments on: How I Saved $544 In Only 10 Minutes Planning A Discount Las Vegas Vacation

By: lth_davis

lth_davis — Wed, 02 Dec 2009 20:33:14 +0000

Two ways to answer this question:
First, you can break down the variables in a bond to the base components:

1. Term. How long cash flows on the bond lasts and if cash payments are irregular/delayed.

2. Periods. How many compounding periods are in a year. This varies from continual (infinite) to non-compounding (1 = simple interest rates)

3. Coupon. Non-principle amounts paid in the interim term.

4. Principle. The face value of the bond.

5. Discount/premium. The extra amount paid or cut from the initial price to lower/raise the total yield on the bond. For example, a $1,000 10-year bond annual paying bond with a 10% coupon yielding 10% will be worth $1,000 initially. If the same bond is sold for $1,100, the extra 100 lowers the yield on the bond investment.

6. Embedded options. Bonds sometimes come with embedded options like calls and puts. These have to be stripped out, valued through option-pricing models like Black-Scholes, so you can get to the true interest rate without the option.

Secondly, you can answer this by using terms like a credit rating agency. Here are the components:

a. Risk free rate. The interest rate given no default risk (e.g. the US 10 year T-bill rate).

b. Sovereign risk. The premium given to a bond for the inherent risk of the underlying assets operating in a foreign country.

c. Agency risk. The risk attached to the agency/company underwriting the bond. Basically, it's the risk that the company will default and/or go bankrupt.

d. Currency risk. This is the risk associated with the bond being denominated in a foreign currency and/or being located in a different country. For example, Japanese yen bonds rates are extremely low, meaning that the currency risk premium is negative.

By: 호연

호연 — Wed, 02 Dec 2009 18:07:45 +0000

Because the fed panders to borrowers.

By: Rach6

Rach6 — Wed, 02 Dec 2009 14:50:52 +0000

Banks set the Prime Rate… the other rates are set by a different entity.

By: Math Help

Math Help — Wed, 02 Dec 2009 12:55:45 +0000

Use a spread sheet. Fill the following cells:
B1 => 10%
C1=> 2160
A4 up to A11 => the numbers 1 up to 8
B4 up to B11 => =POWER(1+B$1;A4)
C4 up to C11 => =C$1/B4

If done correctly row 11 shows:
82.141007.66

Then add C13 => =SUM(C4:C11)
Shows 11523.44 initially.

A4 and B4 in the above change of course with cell number, the reference is every time to the cell directly left to it.

When you're all set up, vary cell B1 to adjust C13 to 5000.
Answer 40.327%

By: TORRES

TORRES — Wed, 02 Dec 2009 10:25:13 +0000

do you mean n/60

For example, if the total was $1000, the balance of $1000 would be due in 60 days. The discount would be 3%, or $30, if paid within 15 days. This would make the payment $970. The effect would be paying $30 interest on a $970 investment for 45 days.

Using a simple interest calculation method:

$970xrx45/360=$30, with r being the interest rate.

solve for r:
r=(30×360)/(970×45)=10,800/43650=0.247, or 24.7% (rounded)

Ignoring the discount price, you can get a slightly different answer using a much simpler calculation:

3% on 45 days:

Annualize the 3%, calculate by

3% x 360 / 45 = 24%