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Yield Calculation Question

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Allen Theobald

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Apr 12, 1996, 3:00:00 AM4/12/96
to
Hello,

I am reading book that uses these numbers
for calculation of yield:

Year CashFlow
---- --------
0 <3,000>
1 0
2 0
3 0
4 0
5 20,454.11

Year 0 represents the year I took $3000 out
of pocket to start the deal (purchasing a
balloon payment). There is no income in
year 1,2,3,4. At the end of the 5th year
I receive $20,454.11 in on lump sum payment.

When you calculate the rate of return, you
get a 39% yield on the money.

39% represents taking $3000 out of my pocket
and looking at what it produces over a 5
year period.

How is 39% caculated? No matter how I punch
up NPV, NFV, and IRR, I can not get 39%

What's up?

Thanks,

Allen

Adam Frankel

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Apr 12, 1996, 3:00:00 AM4/12/96
to Allen Theobald
If your profit after 5 years is $17,454.11, your annual yield is
116.3607333333%

--
封封封封封封封封封封封封封封封封封封封
Adam Frankel -Broker/salesman-
Realty Executives of Nevada
1903 S. Jones Blvd.
Las Vegas, NV 89102
(702) 873-4500 Office
(702) 499-5248 Cellular
(702) 341-6861 Fax

http://members.aol.com/glvreg/
Greater Las Vegas Real Estate Guide

CrosslandM

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Apr 12, 1996, 3:00:00 AM4/12/96
to
In article <4klseb$i...@ns.oar.net>, Allen Theobald <all...@novaengr.com>
writes:

>Year 0 represents the year I took $3000 out
>of pocket to start the deal (purchasing a
>balloon payment). There is no income in
>year 1,2,3,4. At the end of the 5th year
>I receive $20,454.11 in on lump sum payment.
>
>When you calculate the rate of return, you
>get a 39% yield on the money.
>
>39% represents taking $3000 out of my pocket
>and looking at what it produces over a 5
>year period.
>
>How is 39% caculated? No matter how I punch
>up NPV, NFV, and IRR, I can not get 39%
>
>What's up?

What you get is a 39% ANNUAL yield on your money, NOT a 39% return on the
total investment. It's easy to calculate on an HP 10B calculator. Punch in
60 for the number of months (N). Enter -3000 for present value (PV) of the
investment. Payment value (PMT) is zero. Future value (FV) is 20454.11.
Now just press the I/YR (interest per year) button and presto! A 39.01%
annual yield.

Hope this helps.

Martin D. "Marty" Crossland, PhD, CMI
CharisWorks Funding Associates
2254 S. Hilton Avenue
Springfield, Missouri 65807-3185
call toll free: 1-800-370-5037
local phone and fax: 1-417-890-1991
e-mail Chari...@aol.com
Web site: http://www.charisworks.com/

SA Stephenson

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Apr 13, 1996, 3:00:00 AM4/13/96
to
Begin with a calculator that works (if it has an "=" function throw it
away. Try using an HP12C like the rest of the world.

PV= -3,000 (don't forget to use "-" sign)
PMT= 0
N=5
PV= 20,454.11

press "I" to solve for rate = 46.80%

The same calculation can be done using IRR but this problem is too
simple. IRR acommodates "+" & "-" annual cash flows using "blue" key
inputs and finally "gold-FV" which solves the IRR calculation.

Stay away from RE-seminars as the only calculation they can figure is
this:

# of loons times (X) $495 = gross $$$profit$$$

In <4klseb$i...@ns.oar.net> Allen Theobald <all...@novaengr.com> writes:
>I am reading book that uses these numbers
>for calculation of yield:
>
> Year CashFlow
> ---- --------
> 0 <3,000>
> 1 0
> 2 0
> 3 0
> 4 0
> 5 20,454.11
>

>Year 0 represents the year I took $3000 out
>of pocket to start the deal (purchasing a
>balloon payment). There is no income in
>year 1,2,3,4. At the end of the 5th year
>I receive $20,454.11 in on lump sum payment.
>
>When you calculate the rate of return, you
>get a 39% yield on the money.
>
>39% represents taking $3000 out of my pocket
>and looking at what it produces over a 5
>year period.
>
>How is 39% caculated? No matter how I punch
>up NPV, NFV, and IRR, I can not get 39%
>
>What's up?
>

>Thanks,
>
>Allen
>
>


CrosslandM

unread,
Apr 13, 1996, 3:00:00 AM4/13/96
to
Referencing the two-part discussion below:
You only get a 116.36% annual yield if you assume SIMPLE interest. In most
real estate calculations we look at COMPOUND interest on investments,
mortgages, etc.

The formula for calculating future value of compounding interest is:
FV =c* (1+i)^n
c is the investment/deposit. i is the interest rate per period. n is the
number of periods.

Most real estate calculations use monthly periods, even if there is no
income. So in the example below we have to solve for the interest rate for
an "n" of 60 months.
Subtract 3000 from 20454.11, take the 60th root of the result, subtract
one. This gives the monthly compound interest rate of 3.251%. Multiply by
12 to get the annual compound rate of 39.01%.

And you thought you'd never use that high school algebra!

Hope this helps.
Martin D. "Marty" Crossland, Ph.D.
CharisWorks Funding Associates
(see bottom of this message for our e-mail and Web site addresses)

In article <316E97...@concentric.net>, Adam Frankel
<glv...@concentric.net> writes:

>If your profit after 5 years is $17,454.11, your annual yield is
>116.3607333333%
>
>
>Allen Theobald wrote:
>>
>> Hello,
>>

Martin D. "Marty" Crossland, PhD, CMI

Phillip McGinnis

unread,
Apr 14, 1996, 3:00:00 AM4/14/96
to
O.K. I have watched this thread long enough. Martin seems to have hit
the nail on the head! To others: Get a HP 19BII and your set for
life! When working this problem on my beloved calc I got 39.01216%
N=60
PV= -3000
FV= 20454.11
press I%YR and ... 39.01216 is the answer displayed.

Well that is my two cents worth.
(Thank for the wonderful explaination Martin!)

cross...@aol.com (CrosslandM) wrote:

~Referencing the two-part discussion below:
~You only get a 116.36% annual yield if you assume SIMPLE interest. In
most
~real estate calculations we look at COMPOUND interest on investments,
~mortgages, etc.

~The formula for calculating future value of compounding interest is:
~ FV =c* (1+i)^n
~c is the investment/deposit. i is the interest rate per period. n is
the
~number of periods.

~Most real estate calculations use monthly periods, even if there is
no
~income. So in the example below we have to solve for the interest
rate for
~an "n" of 60 months.
~Subtract 3000 from 20454.11, take the 60th root of the result,
subtract
~one. This gives the monthly compound interest rate of 3.251%.
Multiply by
~12 to get the annual compound rate of 39.01%.

~And you thought you'd never use that high school algebra!

~Hope this helps.
~Martin D. "Marty" Crossland, Ph.D.
~CharisWorks Funding Associates
~(see bottom of this message for our e-mail and Web site addresses)

Allen Theobald

unread,
Apr 15, 1996, 3:00:00 AM4/15/96
to
>>Year 0 represents the year I took $3000 out of pocket to start the
>>deal (purchasing a balloon payment). There is no income in year 1,2,3,
>>4. At the end of the 5th year I receive $20,454.11 in on lump sum
>>payment.
>>
[snip, and Martin D. "Marty" Crossland writes]

>
>What you get is a 39% ANNUAL yield on your money, NOT a 39% return on the
>total investment. It's easy to calculate on an HP 10B calculator. Punch in
>60 for the number of months (N). Enter -3000 for present value (PV) of the
>investment. Payment value (PMT) is zero. Future value (FV) is 20454.11.
>Now just press the I/YR (interest per year) button and presto! A 39.01%
>annual yield.
>
>Hope this helps.
>

Thanks to all who responded to this question. 39% is the answer.

I am going to be working with a lot of numbers involving present,
and future values (much more complicated than this). Are there
any good references that disucuss these? Especially with respect
to real estate? I am new to this, and a little ignorant of the
equations. Please educate me! I thought I understood. That is
why I tried IRR. Is IRR the wrong apporach? I need lots of examples.

Thanks,

Allen

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