Chapter 1: Present Values, Future Values
Cashflow Definitions, Negative and Positive
The Sign Convention
Positive or Negative Cashflow as a Relative Concept
Analyzing Cashflows from a Single Vantage Point
T–Bar Representation of Cashflow
Mathematical relationships PV, FV
Using the Calculator's Financial Register
Discounting, Discounting Trust Deed Notes
n Delivered Only As Integer
Determining a Yield from Even Payments
Distinguishing Between PMTs and FV
Present Value of Annuities in Perpetuity
Present Value of Finite Annuities, Ordinary and Annuity Due
Present Value of Perpetual Annuities Adjusted for Growth Factor
Present Value of Finite Annuities Adjusted for Growth Factor
Adjusting Rates to Compensate for Inflation
Interest Rates, Nominal vs. Effective
Continuous Compounding & Discounting
Derivation and Use of Epsilon (e)
Chapters 2 : Working With Uneven Cashflows
Alternate Financial Register
Adding Cashflows To A Series
Using Nj To Indicate Repeating Cashflows
Limitations on the Number of Cashflows
Adjusting for Incorrect Entries in CFj and Nj
Discounting Cashflows from Leases
Net Present Value, Definition and Determination
Discount Rate Varies with Risk
Return on Investment (ROI)
NPV of an Income-Producing Realty
Internal Rate of Return (IRR)
Negative Cashflows and the IRR
PMTs Occurring at the Beginning of the Period
PV & NPV on Computer Spreadsheet
Handling Series which Exceeds Calculator Capacity
Valuing Uneven Cashflows from Small Business OpportunitiesChapter 3: Annuities & Rates
Perpetual annuities
Ordinary annuities, annuities due
Determining required payments
Nominal vs. effective rates
Using the Inflation Adjusted Rate
Continuous compounding, discounting
Adjusting rates to compensatre for inflation
Graduate Payment Annuity
Calculating changes in CPI
Chapter 4: The Internal & Modified Rates of Return
Definition od IRR
IRR Under Different Aliases
Iteration
IRR by Construction
IRR by Interpolation
Meaning of the IRR
Limitations to the IRR, real and imagined
Possible Multiple IRRs for the Same Cashflow
Reinvestment Rate of Payments – Does It Matter?
IRR and Negative Payments
Modified Internal Rate of Return (MIRR)(FMRR)
Geometric Rate of Return
Chapter 5: Cashflows from Stocks
Valuing Cashflows from Stocks
Market Capitalization Rate, Stocks
Capitalization of Dividend
Contribution of Growth to Price
Components of Market Capitalization Rate
The Re-Investment Ratio
Rate of Return on Equity (ROE)
Contribution of IRR of New Projects to Stock Value
Growth without Dividends
Price/Earnings Ratio
PEG Ratio
Safe Rate of Return
Cashflows from REITs
Free Cashflow per Share
Chapter 6: Cashflows from Bonds
Coupon Rates and Maturity Dates
When Bonds Are Called
Bond Terminology: Rates, Ticks, Bid, Ask and Yield-To-Maturity
Calculating Bond Yields
Determining Bond Price, Given a Yield
Determining Bond Yield Using Call Dates
Spot Rate for Money
Term Structure of Interest Rates, Yield Curves
Bond Duration
Convexity of Yield Curve
Macauly's Duration Factor
Calculation of Bond Duration
Factors Determining Bond Duration
Using Duration to Estimate Bond Price
Using Duration to Estimate Bond Portfolio Price Change
Zero Coupon Bonds
Volatility
Duration of Zero Coupon Bonds
Taxation of Zero CouponBonds
Use of Zero Bonds as Planning Tool
Chapter 7: Risk Analysis
Components of Discount Rate
Safe Rate and Inflation
Expected Rate of Return
Deviation & Variance of historical returns
Deviation & Variance of expected (probable) returns
Meaning of Deviation
Empirical Rule
Semi-Variance
Semi-Standard Deviation
Sharpe's Index of Risk
Risk of Portfolio of stocks
Unique (Unsystematic) vs. Market (Systematic) risk
Correlation coefficient
Covariance
Market Portfolio Theory
Beta, Alpha
R-Squared
Monte Carlo Simulation
Bond Ratings, S& P, Moody's
Chapter 8: Cashflows from Promissory Notes & Mortgages
Distinguishing Mortgages & Trust Deed Loans
Fixed Rate, Amortizing Mortgage
The Amortization Schedule
Determining the Payment Necessary
Solving for n, the Number of Periods
Solving for a Balloon Payment
Solving for the Interest Rate i
Payments when the Period is Not Monthly
Constructing an Amortization Schedule
Mortgage Interest Paid in Arrears (Ordinary Annuity)
Creating Amortization Schedules Using the HP 12C
Determining Remaining Balances
The Adjustable Rate Mortgage
Margin, or Spread
Negatively Amortizing Mortgage
Base Indices
Cost of Funds Index
Teaser Rates
ARMS Subject to Significant Lender Errors
Progress of an ARM
Basis Points, Definition (footnote)
Amortization Schedule
Determining Maximum Interest Rate
Limit On Payment Increases
Why PMTs May Not Decline
Recasting an ARM
When to Choose an ARM Over a Fixed-Rate Mortgage
Buydown Mortgages
3-2-1 and Other Arrangements
Developer Buys Out
Determining Builder’s Paydown
Buydown Available to Private Home Sellers
All-Inclusive Deed Of Trust Mortgage
Capital Structures
"Subject to" Clauses
Assuming a Loan
Calculating the Yield
Constructing an AITD to Produce a Specified Yield
AITDs Using Adjustable Interest Rates
Multiple Notes Underlying an AITD
Escrow AITD Payments
CAVEAT
Loan Constants, Debt and Loan Ratios, APRs
Monthly Loan Constants
Residential Loan Underwriting Guidelines
Use of Front-End & Back-End Ratios
Loan-to-Value Ratios
Debt Service (Coverage) Ratios
Annual Percentage Rate (APR)
Graduated Payment Mortgage, GPM Annuity
Discounted Value of the Payments
Determining the Payments
GPM Loan Factors
Commercial Applications of Concept
Application of GPM Concept to Financial Planning
Chapter 9: Valuing Cashflows from Real Estate
Capitalization Rates
Source of Capitalization Rates
Why the Capitalization Rate Changes
The Rate of Return OF Capital
The Rate of Return ON Capital
Required Return Rates and Risk
Band of Investments Approach
Strengths and Weaknesses of the Cap Rate
Market Value vs. Investment Value
Cash-on-Cash, Gross Rent Multipliers
Distinguishing ROI, ROE, IRR
Why Monitor Equity Buildup
Utilizing Discounted Cash Flow Analysis
Pre-tax or After-tax?
Determining Pre-tax & After-tax Cashflows
Developing a Pro-Forma
Choosing the Correct Depreciation Schedule
Importance of Assumptions
Choosing Depreciation Schedule
How Loan Points are Handled
Determining the Original Basis
Adjusted Basis at Time of Disposition
Reversion Value (FV) of the Investment Property
Estimating Final Gross Sales Price
Capital Gains and Capital Gains Tax
Recapture of Depreciation
Estimate of Net Proceeds
Selecting an Appropriate Discount Rate
Chapter 10: Effect of Leverage on Investment Cashflows
Definition of Leverage
Neutral, Positive, Negative Leverage
Benefits and Risks of Leverage
Effect of Leverage on ROE
Determining Maximum Leverage
Effect of Leverage on IRR
Chapter 11: Problems and Their Answers
Appendix:
Formulas for Cashflows
Using the Inflation-adjusted interest rate (IAR)Glossary
Index