Formulas and Calculations

Question 1

What are the keys and steps to find inflation adjusted return?

Answer 1

1.xx Enter 1.xx Δ%
Inflation Interest

Question 2

Purchasing Power retains the same value adjusted for inflation at the end of the period/time frame.
What are the keys and steps to determine purchasing power?
Hint: uses inflation adjusted return

Answer 2

x = FV (Amount to be adjusted for inflation)
x = N (Number of periods)
0 = PMT (Don’t want to reduce $ amount)
I = 1.xx Enter 1.xx Δ%
Inflation Interest
? = PV

PV + FV = Amount needed Day 1

Note: If end amount is not given, first complete capital utilization process

The only difference between Purchasing Power and Capital Preservation is that PP uses inflation adjusted rate and CP uses nominal interest rate.

Question 3

Capital Utilization will determine how much is needed day 1
to make ongoing payments until reach $0.
What are the keys and steps to determine Capital Utilization?
Hint: consistent payments will be made = annuity due, so Beg mode!
uses inflation adjusted return

Answer 3

BEG MODE

x = PMT (Amount needed each period)
x = N (Number of periods)
0 = FV (Want to end with $0)
I = 1.xx Enter 1.xx Δ%
Inflation Interest
? = PV

Note: For Cap Preservation or Purchasing Power, PV is needed. If not given, will need to determine Capital Utilization (this process).

Question 4

Capital Preservation keeps specified capital at the end of the time period/life.
What are the keys and steps to determine Capital Preservation?
Hint: uses nominal rate

Answer 4

x = FV (Amount to remain)
x = N (Number of periods)
0 = PMT (Don’t want to reduce $ amount)
x = I (Whole number - nominal interest rate)
? = PV

PV + FV = Amount needed Day 1

Note: If end amount is not given, first complete capital utilization process

The only difference between Capital Preservation and Purchasing Power is that CP uses nominal interest rate, PP uses inflation adjusted rate.

Question 5

“In today’s dollars” requires determining inflation adjusted amount.
What are the keys and steps to determine?
Hint: PV is known, FV is TBD.

Answer 5

= I (Inflation as whole number)

X = CHS PV (Amount to be adjusted for inflation)
X = N (Number of periods)
X = I (Inflation as whole number)
? = FV

Question 6

What is the formula for Arithmetic mean?

Answer 6

Add all numbers, then divide by number of entries

Question 7

Standard deviation measures the volatility of holdings.
ճ (Standard deviation symbol)
What are the keys and steps to determine?

Answer 7

Σ⁺ if positive number
CHS Σ⁺ if negative number
g . (decimal) to calculate

Question 8

What calculation is used to determine deductible percentage of contributions when within the phase out range for

Answer 8

[ (Highest in range - client’s MAGI) / the phase out range ] x contribution amount = $ amount of deductible contributions
EX: $116K-$136K range, $131K MAGI, contribution of $13K
[ (136K - 131K) / 20K) ] x 13K = $3,250

Question 9

What is the process and keys for determining intrinsic value of a bond?

Answer 9

N = number of years x2 (unless specified - otherwise paid every 6 months aka 2x a year)
I = comparable rates /2 (unless specified - otherwise received every 6 months aka 2x a year)
PMT = coupon payment x5 (when $1000 value)
FV = 1000 (unless otherwise noted)
PV = ?

Question 10

What is the process and keys for determining YTM of a bond?

Answer 10

N = number of years x2 (unless specified - otherwise paid every 6 months aka 2x a year)
PMT = coupon payment x5 (when $1000 value)
FV = 1000 (unless otherwise noted) - maturing amount
PV = CHS current trading price
I = ? then x 2 (just the opposite of comparable rates /2 when finding intrinsic value)

Question 11

What is the process and keys for determining YTC of a bond?

Answer 11

N = number of years until called x2
PMT = coupon payment x5 (when $1000 value)
FV = Call price
PV = CHS current trading price
I = ? then x 2 (just the opposite of comparable rates /2 when finding intrinsic value)