Just read it…
http://georgetownvoice.com/2013/09/26/teach-regulation-robbery/
Category Archives: Financial
10 ways a government shutdown would affect your daily life – CNN.com
Republicans Should Trade The Debt Ceiling For A Better Budget Baseline – Forbes
So let me get this straight. For the past 30 or 40 years Congress has defined the “baseline” budget as one with automatic 6-7% annual spending increases? Please note this is not a Democrat nor a Republican construct. The auto-increase approach has lasted through many permutations of Democratic and Republican leadership over the decades.
I like the author’s suggestion that we return to the old baseline definition: just use prior year spending without any automatic increases. Isn’t that how you create your baseline budget? Who would put in automatic spending increases unconnected to any revenue increases?
The Forbes author noted the current definition for baseline amounts to political doublespeak. For example, calling an increase of 4% a “cut” or “reduction” from the baseline budget. Regardless of your party affiliation, please seek truth and understanding rather than doublespeak-based talking points.
The goal of dialogue should be understanding otherwise it is a waste of time. In the case of our politicians it is also a waste of our tax dollars going towards their compensation.
Finally, how do you think military intervention in Syria would impact the budget deficit? I for one am glad a diplomatic solution may prevail.
From APR and quoted interest rate to loan fees…
I received positive feedback after emailing the following write-up on mortgage loans to students. Perhaps it will move more people closer to understanding mortgage APRs, fees, and “rates” (quoted interest rates).:
Let loan amount = PV = 80,000
Let QIR = 4.250%
Let APR = 4.464%We saw in class how to calculate the fees embedded in the APR:
Step 1: PV = -80,000; I = APR = 4.464/12; N = 30×12; FV = 0; -> PMT=403.64
Step 2: PMT = 403.64; I = QIR = 4.250/12; N = 30×12; FV=0; -> PV=-82,050
Step 3: fees in APR = 82,050 – 80,000 = 2,050Another way to look at Steps 1 and 2:
1. Loan amount with APR -> PMT if fees are included in loan amount
2. Loan amount + fees with QIR -> PMT if fees are included in loan amount (same PMT as step #1)Step one is an implicit inclusion of fees, step 2 is an explicit inclusion of fees. Of course, you could pay the fees with a check at closing, but that is a cost that you incur. You must account for it somehow. A convenient way is to go by the APR that does include fees.
Now, should you pay the fees at closing [or roll them into the loan]? Guess what, it depends. It depends on (a) if you can afford to pay the fees at closing and (b) if there are better alternative instruments to put those fee dollars.
Right now, 30 year T-bonds return 3.80% per year. So, presuming you have the cash, it would not make sense to roll the fees into the loan. You would be borrowing $2,050 at 4.25% to invest in T-bonds that yield only 3.80%. Thus, pay the fees with a check at closing.
However, if you think you can earn 5% on average over the next 30 years, roll the fees into the loan (i.e., borrow $2,050), invest the $2,050, and pray you do earn 5%!
May you be enlightened.
5 years after crash, wealthy are better off – SFGate
College rankings hurt students
This is an interesting article that gives five reasons to ignore college rankings by US News & World Report.
http://m.cbsnews.com/fullstory.rbml?catid=57602138&feed_id=76&videofeed=43
Income gap now the largest in history
And they complain about taxes and big government? Checkout my Cadence of Finance presentation, accessible via my homepage of efficientminds.com, for causes of the widening wealth gap See Robert Reich’s Aftershock for suggested remedies.
http://www.usatoday.com/story/money/business/2013/09/10/pay-gap-richest-poorest/2793343/
Also see this article from the managing editor of Fortune magazine.
Another place for finance graduates to look for jobs
I recently received the following flurry of finance job postings. For those recent finance graduates that follow my website or are LinkedIn, I recommend you set up a profile on the cybercoders.com website. Let me know if you have already found a job or if you land any interviews as a result of today’s suggestion.
Good luck!
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Verizon paying $130 billion (with a B) for Vodafone’s interest in Verizon
In one of the FIN101 sections this week we discussed targets and acquirers. I said the acquirer’s stock price tends to drop and the target’s stock price tends to rise. This recent article in the New York Times makes a similar comment:
“Verizon shares are about the same as they were before rumors of the deal surfaced last week, even though the share price of the acquiring company usually drops.” [emphasis added]
Let’s look at the math of the acquisition. If Vodafone’s 45% stake is worth $130B then Verizon’s total value is $130B/0.45 = 289B. That is $159B for Verizon’s 55% and $130B for Vodafone’s 45%. The NYT article suggests the Enterprise Value is $176B, but that number does not include Minority Interest (which is 52.376B as of the 2013.12.31 balance sheet). So let me calculate what Vodafone is worth:
Enterprise value = Market cap + debt + minority interest + preferred stock – cash and cash equivalents
= 132.61B + 47.618B + 52.376 + 0 – 3.093B = 229.503B
Therefore Vodafone’s 45% is: 0.45*229.503B = 103.28B
So why is Verizon overpaying by roughly 30 billion dollars? Who knows? Perhaps some of the board members, executives, or large shareholders of Verizon are also shareholders of Vodafone. Good for those folks, but not for the remaining shareholders.
If you factor in VZ’s current P/E (84.87) and P/B (3.92) that enterprise value of 229.503 seems inflated. So apparently the offer for Vodafone’s interest includes a mix of the overpriced stock and cash. Maybe it is a fair deal…
Trump University Made False Claims, Lawsuit Says – NYTimes.com
While one should reserve judgement, one should consider that Trump businesses have filed for bankruptcy 4+ times. Does that sound like an organization you should transfer $35,000 of your wealth to learn how to make money in real estate?
http://mobile.nytimes.com/2013/08/25/nyregion/trump-university-made-false-claims-lawsuit-says.html
Efficient Minds™ 