Example

If you invest 3,000 each year for 35 years, with dividends taxed as ordinary income, how much will you have in the account at retirement? Assume an annual dividend rate of 8.175%, a tax rate of 28%, and that payments begin today. What is the purchasing power of that amount in today’s dollars, assuming 4% inflation?

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Table 13-24 Calculating the purchasing power, assuming 4% inflation rate

KeysDisplay Description

J\Í

1.00

Sets 1 payment per year.

 

 

 

 

DVÙ

35.00

Stores number of payment

 

periods until retirement.

g7JjVAGg

§4

5.89Calculates interest rate diminished by tax rate.

Ò

5.89

Stores adjusted interest rate.

 

 

 

 

:Ï

0.00

Stores amount you are starting

 

with.

 

 

 

D:::yÌ

 

payment.

 

-3,000.00

Stores amount of annual

 

 

 

É

345,505.61

Calculates amount in account at

 

retirement.

 

 

 

YÒ:ÌÏ

-87,556.47

Calculates present value

 

purchasing power of FV,

assuming a 4% inflation rate.

Cash Flow Examples

Wrap-Around Mortgages

A wrap-around mortgage is a combination of refinancing a mortgage and borrowing against real estate equity. Usually the two unknown quantities in the wrapped mortgage are the new payment and the rate of return to the lender. To arrive at a solution, you need to use both the TVM and the cash flow applications.

Example

You have 82 monthly payments of 754 left on your 8% mortgage, leaving a remaining balance of 47,510.22. You would like to wrap that mortgage and borrow an additional 35,000 for another investment. You find a lender who is willing to “wrap” an 82,510.22 mortgage at 9.5% for 15 years. What are your new payments and what return is the lender getting on this wrap-around mortgage?

152 Additional Examples