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Well, to begin with, that isn't NPV or anything to do with NPV.
What you're calculating is a sum of five numbers. The numbers are really weird. You're summing up the inverse of an investment's value held for 1 yr, 2 yrs, 3 yrs, 4 yrs, 5 yrs.
Just take your first number:
Period 1 S&P is return is -10%. You've got (1-.1)^-1. = 1.11 + 1.37 + 1.23 + 1.12 + .93. Sum that up and you've got 5.76. I was lazy with carrying digits of course.
You could of course back track and get something that still isn't NPV but would be meaningful.
1/1.11 is .90. If you invested $1 in the S&P500 in August of '07 in August of '08 you'd have 90 cents.
1/1.37 = .72. If you invested $1 in the S&P 500 in August of '07 in August of '09 you'd have 73 cents.
NPV = C/(1+r) -Co.
.90/(1+(-.10) - 1. Which is of course just 1/1 -1 which is 0. Which is what you'd expect. If your discount rate is -10%, you're indifferent between $1 today and .90 cents in the future. It's a bit contorted since who has a negative discount rate but the math doesn't care.
What would be more relevant but still nothing to do with NPV would be:
1000^(1+rate of return for year 1) = Ending_Balance1 (EB1)
[EB+1000]^(1+rate of return in year 2)=EB2
and so on.
That would get you your balance in an account which you could compare with the result of simply keeping the initial balance held for the same period
(1+rate of return) is not supposed to be an exponent, as you have it. It is a multiplicative factor.
Ok, fine, "quasi- NPV" as in the method used in your earlier example. The point remains. I calculated it in exactly the same way as you did in post # 196. It is your method. (If you don't believe me, write the general expression down in algebraic form - you'll see for yourself...)
Now hopefully you can appreciate, at least a little, why some of us are debt-averse (I'm assuming you entered this discussion trying to understand the view, no? )
You're blaming me because your code was wrong. It's your code. You can still fix it and get something meaningful out of the individual numbers you're summing even if your sum is meaningless since you're just summing up [1/(1+r1) + 1/(1+r2) ... + 1(/1+r5)] rather than summing up [(1+r1) ... +(1+r5)]. Even if your code wasn't wrong, it still wouldn't have anything to do with NPV though. The 5.78 (or 5.76 if you were lazy with digits like me) is totally meaningless number though. You can't do anything with besides toss it out.
#196 had nothing to do with NPV. It was just examples of how the timing can effect the results. The NPV is the NPV. Depending on market timing, the outcomes are going to be different. Of course, it's just as likely to be overstated as understated.
This just *really* bothers me. I have many people in my middle-upper middle class neighborhood that are selling good vehicles for $4500 with as little as 150k miles. I would take one of those rather than take out a 7 or 8 year loan.
I'm sure a salesman would be more than happy to show me, but I'm not interested.
I've been driving for 10 years and I've been behind the wheel of 8 different cars... all of which I paid cash for and got clear title on the spot. They all ran great when I sold them... I usually just got bored with them, or someone made me an offer I couldn't refuse (giving me a significant profit).
Cash is king, really. It's amazing the deal you can get when you show cash to a seller... especially if a private party. I've bought cars for as much as 70% below their book value (and I'm not talking about $400 junkers that book at $1,100... although I did buy a pair of great $400 cars last year that are still on the road). And no shame, having clear title is a great thing. No bank, no finance company, no liens, no requirement to have full coverage on the car...
Ok, this thread is deep, lots of information and confusing, I was hoping to be able to decide on a goal/plan for my next car in about a year.
My house and car is paid for, divided retirement savings and investments into buckets of time and funding the max, nice emergency fund, some stock. The only debt I have is to use my amex on everything for points to pay for airline and hotel stays and I pay it off in full every month. I get a free vacation paid for each year (hotel and flight) now if only I could figure out how to get dining paid for lol.
I can pay cash but hate to take such a big chunk out of my account. I can afford a car payment but I am thinking of investing more for dividends that will help pay for my car payment, depending on car, but at todays market it's a roller coaster ride and I'm also thinking about the feds increasing interest rates. Am I way offing my thinking? Any comments or advise. Can we start back to keeping it a little simple and in my position what would you do.
I can pay cash but hate to take such a big chunk out of my account. I can afford a car payment but I am thinking of investing more for dividends that will help pay for my car payment, depending on car, but at todays market it's a roller coaster ride and I'm also thinking about the feds increasing interest rates. Am I way offing my thinking?
Given that your financial position right now is very strong and interest rates currently are very low, I see no problems with financing a car at a low interest rate for a reasonable loan length (3-4 years max) and keeping your cash in investments that are earning more than the 1% a car loan is likely to cost you.
Borrowing money can be a useful tool, as long as you know what you're doing. The problem is that too many people don't.
Ok, this thread is deep, lots of information and confusing, I was hoping to be able to decide on a goal/plan for my next car in about a year.
My house and car is paid for, divided retirement savings and investments into buckets of time and funding the max, nice emergency fund, some stock. The only debt I have is to use my amex on everything for points to pay for airline and hotel stays and I pay it off in full every month. I get a free vacation paid for each year (hotel and flight) now if only I could figure out how to get dining paid for lol.
I can pay cash but hate to take such a big chunk out of my account. I can afford a car payment but I am thinking of investing more for dividends that will help pay for my car payment, depending on car, but at todays market it's a roller coaster ride and I'm also thinking about the feds increasing interest rates. Am I way offing my thinking? Any comments or advise. Can we start back to keeping it a little simple and in my position what would you do.
IMO it depends on the price of the car and new or used. New and you will get a low interest rate...used and you will end up with a 4-6% rate. How much...20K car? Just right the check....why not? Is taking 20K out of your investments going to make a difference? If it is...then dont buy the car.
Ok, this thread is deep, lots of information and confusing, I was hoping to be able to decide on a goal/plan for my next car in about a year.
My house and car is paid for, divided retirement savings and investments into buckets of time and funding the max, nice emergency fund, some stock. The only debt I have is to use my amex on everything for points to pay for airline and hotel stays and I pay it off in full every month. I get a free vacation paid for each year (hotel and flight) now if only I could figure out how to get dining paid for lol.
I can pay cash but hate to take such a big chunk out of my account. I can afford a car payment but I am thinking of investing more for dividends that will help pay for my car payment, depending on car, but at todays market it's a roller coaster ride and I'm also thinking about the feds increasing interest rates. Am I way offing my thinking? Any comments or advise. Can we start back to keeping it a little simple and in my position what would you do.
Without numbers, it's hard to give you advise.
Nice emergency fund to me is like $100,000, to some people, it's like $10,000, so which is it?
If you are doing as good as I think you are, you should go and enjoy yourself with a nicer car.
Nice emergency fund to me is like $100,000, to some people, it's like $10,000, so which is it?
If you are doing as good as I think you are, you should go and enjoy yourself with a nicer car.
Geez, 100k, to me a good emergency fund is 6 months of living expenses if your chief earner were to lose his/her job. I don't like to keep to much in cash in my savings account, never more than 10-15k. I figure if a disaster struck I have my brokerage account and our Roth IRA contributions we could tap into and we also could always open a HELOC.
Geez, 100k, to me a good emergency fund is 6 months of living expenses if your chief earner were to lose his/her job. I don't like to keep to much in cash in my savings account, never more than 10-15k. I figure if a disaster struck I have my brokerage account and our Roth IRA contributions we could tap into and we also could always open a HELOC.
Just because it's an emergency fund doesn't mean it has to be in a passbook savings account. It just needs to be accessible without penalty, a couple months in a savings account (money market), some of it in laddered CD's, some in mutual funds not associated with a ROTH or IRA, etc. A HELOC is a good way to extend your year's worth of emergency fund into 18-24 months because you have to make payments on it if you use it. 6 months is NOT enough....12-18 months as many people learned in 2008-2010+.
Geez, 100k, to me a good emergency fund is 6 months of living expenses if your chief earner were to lose his/her job. I don't like to keep to much in cash in my savings account, never more than 10-15k. I figure if a disaster struck I have my brokerage account and our Roth IRA contributions we could tap into and we also could always open a HELOC.
Maybe that's 6 months' worth of his family's living expenses.
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