Additional Examples152
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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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?
Table 13-24 Calculating the purchasing power, assuming 4% inflation rate
Keys Display Description
J\Í
1.00 Sets 1 payment per year.
DVÙ
35.00 Stores number of payment
periods until retirement.
g7JjVAGg
§4
5.89 Calculates interest rate
diminished by tax rate.
Ò
5.89 Stores adjusted interest rate.
:Ï
0.00 Stores amount you are starting
with.
D:::yÌ
-3,000.00 Stores amount of annual
payment.
É
345,505.61 Calculates amount in account at
retirement.
YÒ:Ì Ï
-87,556.47 Calculates present value
purchasing power of FV,
assuming a 4% inflation rate.
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