The Mathematics of Money

Copyright © 2008, The McGraw-Hill Companies, Inc.

in a Spreadsheet 212 / Rounding in Spreadsheets 214 / Illustrating

Compound Interest with Spreadsheets 215 / More Formatting and

Shortcuts 217 / 5.2 Finding Future Values with Spreadsheets 221

Building a Future Value Spreadsheet Template 222 / Spreadsheets for

Nonannual Annuities 222 / Finding Future Values When the “Annu-

ity” Isn’t 223 / 5.3 Amortization Tables with Spreadsheets 228

Using Amortization Tables to Find Payoff Time 229 / Negative Amortiza-

tion 231 / 5.4 Solving Annuity Problems with Spreadsheets 235

Solving for Interest Rates 236 / Using Goal Seek 238 / Changing

Interest Rates 239 / Very Complicated Calculations 240

Summary 244

Exercises 245

PART two

SPECIFIC APPLICATIONS 249

6 Investments 250

6.1 Stocks 250 / Dividends 252 / Distributing Profi ts of a Partner-

ship 253 / Dividend Yields 253 / Capital Gains and Total Return 255

Total Rate of Return 257 / Volatility and Risk 258 / 6.2 Bonds 263

The Language of Bonds 263 / Current Yield and Bond Tables 264 / Yield

to Maturity 265 / The Bond Market 266 / Special Types of Bonds 268

Bonds and Sinking Funds 269 / 6.3 Commodities, Options, and Futures

Contracts 274 / Hedging With Commodity Futures 275 / The Futures

Market 276 / Profi ts and Losses from Futures Trading 277 / Margins

and Returns as a Percent 279 / Options 280 / The Options Market 282

Abstract Options and Futures 282 / Options on Futures and Other

Exotica 283 / Uses and Dangers of Options and Futures 284 / 6.4 Mutual

Funds and Investment Portfolios 289 / Diversifi cation 290 / Asset

Classes 292 / Asset Allocation 293 / Mutual Funds 295 / Measuring Fund

Performance 297

Summary 302

7 Retirement Plans 306

7.1 Basic Principles of Retirement Planning 306 / Defi ned

Benefi t Plans 307 / Defi ned Contribution Plans 309 / Vesting 309

Defi ned Benefi t versus Defi ned Contribution Plans 311 / Social

Security Privatization 312 / 7.2 Details of Retirement Plans 315

Individual Retirement Accounts (IRAs) 316 / 401(k)s 317 / Annui-

ties 319 / Other Retirement Accounts 320 / 7.3 Assessing the

Effect of Infl ation 322 / Long-Term Predictions about Infl ation 323

Projections in Today’s Dollars 324 / Projections Assuming Payments

Change at a Different Rate than Infl ation 326

Summary 330

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