To all the math/finance experts here, I have a question about how to calculate the return on investment for doing max msd’s.
Looking at numbers from a vehicle in the marketplace
MSRP 83145
36 months
2k drive off - 649 plus tax
2k drive off max msd - 573 plus tax
my estimation the max msd’s would = $6490
and $76 savings per month * 36 months = $2736
At the end of the lease, I would get the initial investment of $6490 back plus would have saved $2736 over 3 years equaling a total return of $9226
So how do you calculate what the annual rate of return is? Is there a formula for figuring this out?
It definitely seems better that putting $6490 in a money market acct at 5% interest.
If youre going to compare to the rate of return on an investment, dont forget that the investment return is taxed, so you would need a lot higher than an 11% rate of return to end up at 11% post-tax.
Your annual ROR is 14.22% tax free, of course. Its calculation requires an iterative technique such as the Newton-Raphson method of successive approximations…
The calculator solution (e.g., TI-84 which almost every advanced math HS kid has) is as follows…
N = 36
I% = 14.22calculated
PV = -6490 (MSD’s you’re paying at lease inception. Hence, the negative sign)
PMT = 76 Money you save each month
FV = 6490 MSD’s you get back at the end of the lease
P/Y = 12 payments per year
C/Y = 12 number of compounding periods per year
PMT Convention: Beginning of the month … in a lease, payments are paid one month in advance.
Yup. I used the TI-84 because it was quicker for me. But, yes, you’re right. I’ve used the IRR function in excel many times and that’s probably what most people would do as not everyone has access to a TI/83/84 calculator unless they have HS age kids.
Another option in excel is to use the RATE function…
Always a Casio guy since I didn’t go to high school in the US and I was in HS eons ago. When my high school aged kid asked me to buy a TI84 few years ago, I couldn’t believe how expensive it was, basically because of laziness by schools/institutions it turns into a monopoly.
Scam? Outdated? That’s a real stretch. I’ll admit, it is pricey but it’s worth it especially if students use it in both HS and college thru grad school. How do you propose updating the calculator? I hope you’re not going to suggest smartphone apps, Wi-Fi, etc., as that would be a HUGE problem for teachers. Per the article, “smartphones can’t be used on standardized tests such as the SAT and ACT. Schools are understandably reluctant to let them be used in classrooms, where students may opt to tune out in class and instead text friends or play games.” Add Wi-Fi and you may have a cheating problem on in-class exams. With AI, the problem is magnified 100-fold. When I gave exams, I always had a calculator part and a non-calculator part. In any case, students had to show their work and it had to be neat and orderly. NO WORK, NO CREDIT!
hmmmmm… I asked how you propose to update the calculator. I agree that TI is a near-monopoly having approximately 78% of the calculator market share. There are other calculator manufacturers (e.g., casio, etc.) that have nearly the same functions as TI. I do believe that TI’s market share is trending downward.
