## Friday, August 29, 2008

## Monday, August 25, 2008

### 10 Calculations to know

I came across this splendid article in Outlook Money.

It talks about 10 of the most useful financial calculations for us to know. Most of them are to be fed in MS Excel while some can be simple calculations you can do mentally or on a sheet of paper. I found this article very helpful.

Presented below is the abridged text from the article above:

1. Compound Interest

I want to take a loan of Rs 1 lakh to buy a used car. How much will the car cost me at an annual interest rate of 8 per cent for four years?

The compound interest formula can be used here to calculate the final cost, which would include the loan amount and the interest paid. The amount that is actually paid for Rs 1 lakh is Rs 1,36,048.90. The total amount of interest charged for borrowing Rs 1 lakh is Rs 36,048.90.

Formula: Future value = P(1 + R)^N

Type in: =100000(1+8%)^4 and hit enter. P: amount borrowed; R: rate of interest; N: time in years.

Also used for: Calculating the maturity value on lumpsum investment (bank fixed deposits and National Savings Certificate, for example) over a fixed period at a certain rate of interest.

2. Compound Annualised Growth Rate

I had invested Rs 1 lakh in a mutual fund five years back at an NAV of Rs 20. Now the NAV is Rs 70. How should I calculate my returns on an annual basis?

Compound annualised growth rate (CAGR) will be used here to calculate the growth over a period of time. The gain of Rs 50 over five years on the initial NAV of Rs 20 is a simple return of 250 per cent (50/20 * 100). However, it should not be construed as 50 per cent average return over five years.

Formula: CAGR = {[(M/I)^(1/N)] – 1} * 100

Type in: =(((70/20)^(1/5))-1)*100 and hit enter. M: maturity value; I: initial value; N: time in years. CAGR here is 28.47%.

Also used for: Calculating the annualised returns on a lumpsum investment in shares.

3. Internal Rate of Return

I paid Rs 18,572 every year on a moneyback insurance policy bought 20 years back. Every fifth year, I received Rs 40,000 back and Rs 4.5 lakh on maturity. What was my rate of return?

The internal rate of return (IRR) has to be calculated here. It is the interest rate accrued on an investment that has outflows and inflows at the same regular periods.

In the excel page type Rs 18,572 as a negative figure (-18572), as it is an outflow, in the first cell. Paste the same figure till the twentieth cell. Then, as every fifth year has an inflow of Rs 40,000, type in Rs 21,428 (40,000-18,572) in every fifth cell. In the twentieth cell, type in –18572. In the twenty first cell, type in Rs 4,50,000, which is the maturity value of the policy.

Then click on the cell below it and type: = IRR(A1:A21) and hit enter. 5.28% will show in the cell. This is your internal rate of return.

Also used for: Calculating returns on insurance endowment policies.

4. XIRR

I bought 500 shares on 1 January 2007 at Rs 220, 100 shares on 10 January at Rs 185 and 50 shares at Rs 165 on 18 May 2008. On 21 June 2008, I sold off all the 650 shares at Rs 655. What is the return on my investment?

XIRR is used to determine the IRR when the outflows and inflows are at different periods. Calculation is similar to IRR’s. Transaction date is mentioned on the left of the transaction.

In an excel sheet type out the data from the top most cell as shown here. Outflows figures are in negative and inflows in positive. In the cell below with the figure 4,25,750, type out

=XIRR (B1:B4,A1:A4)*100

Hit enter. The cell will show 122.95%, the total return on investment

Also used for: Calculating MF returns, especially SIP, or that for unit-linked insurance plans.

5. Post-Tax Return

My father wants a bank FD at 10 per cent return for five years. He pays income tax. What will be the returns?

The post-tax return has to be calculated here. The idea is to know the final returns on a fully taxable income. Interest income from the bank is taxed as per your tax slab.

Formula: ROI – (ROI * TR)=Post-tax return

Type in: =10 – (10 * 30.9%) and hit enter. You will get 6.91%

ROI: rate of interest; TR: tax rate (depends on tax slab)

Also used for: Calculating post-tax returns of national savings certificates, post-office time deposits, and Senior Citizens’ Savings Scheme

6. Pre-Tax Yield

My brother says that the investment in public provident fund (PPF), which gives 8 per cent, is the best. Isn’t 8 per cent a low rate of return?

An investment’s pre-tax yield tells us if its return is high or low. The return on PPF (8 per cent) is tax-free. Also, this has to compare with returns of a taxable income to estimate its worth. For someone paying a tax of 30.9 per cent, the pre-tax yield in PPF is 11.57 per cent. At present, there is no fixed, safe and assured-return option that has 11.57 per cent return and a post-tax return comparable to PPF’s 8 per cent.

Formula: Pre-tax yield = ROI / (100-TR)*100

Type in: =8/(100-30.9)*100 and hit enter. You will get 11.57%. ROI: rate of interest, TR: tax rate, (depends on tax slab)

Also used for: Calculating the yield on an Employees’ Provident Fund or any other tax-free instrument.

7. Inflation

My family’s monthly expense is Rs 50,000. At an inflation rate of 5 per cent, how much will I need 20 years hence with the same expenses?

The required amount can be calculated using the standard future value formula. Inflation means that over a period of time, you need more money to fund the same expense.

Formula: Required amt.=Present amt. *(1+inflation) ^no. of years

Type in: =50000*(1+5% or .05)^20 and hit enter. You will get Rs 1,32,664 as the answer, which is the required amount.

Also used for: Calculating maturity value on an investment

8. Purchasing Power

My family’s monthly expense is Rs 50,000. At an inflation rate of 5 per cent, how much will be the purchasing value of that amount after 20 years?

Inflation increases the amount you need to spend to fetch the same article and in a way reduces the purchasing power of the rupee. Here, Rs 50,000 after 20 years at an inflation of 5 per cent will be able to buy goods worth Rs 18,844 only.

Formula: Reduced amt.= Present amt. / (1 + inflation) ^no. of yrs

Type in: =50000/(1+5%)^20 and hit enter. You will get Rs 18,844, which is the reduced amount.

9. Real Rate of Return

My father wants to make a one-year bank FD at 9 per cent. On maturity, he says, the capital will be preserved and he would get assured return on it.

It is true that fixed deposit is safe and gives assured returns. However, after adjusting for inflation, the real rate of return can be negative.

Formula: Real rate of return=[(1+ROR)/(1+i)-1]*100

Type in: =((1+9%)/(1+11%)-1)*100 and hit enter. -1.8% is the real rate of return. ROR: Rate of return per annum; i: rate of inflation (11 per cent here)

10. Doubling, Tripling of Money

I can get 12 per cent return on my equity investments. In how many years can I double or even triple my money?

Formula: No. of years to double = 72/expected return

Type in: =72/12 and hit enter. You will get 6 years. For tripling, type in: =114/12 and hit enter. You will get 9.5 years. For quadrupling, type in: =144/12 and hit enter to get 12 years.

It talks about 10 of the most useful financial calculations for us to know. Most of them are to be fed in MS Excel while some can be simple calculations you can do mentally or on a sheet of paper. I found this article very helpful.

Presented below is the abridged text from the article above:

1. Compound Interest

I want to take a loan of Rs 1 lakh to buy a used car. How much will the car cost me at an annual interest rate of 8 per cent for four years?

The compound interest formula can be used here to calculate the final cost, which would include the loan amount and the interest paid. The amount that is actually paid for Rs 1 lakh is Rs 1,36,048.90. The total amount of interest charged for borrowing Rs 1 lakh is Rs 36,048.90.

Formula: Future value = P(1 + R)^N

Type in: =100000(1+8%)^4 and hit enter. P: amount borrowed; R: rate of interest; N: time in years.

Also used for: Calculating the maturity value on lumpsum investment (bank fixed deposits and National Savings Certificate, for example) over a fixed period at a certain rate of interest.

2. Compound Annualised Growth Rate

I had invested Rs 1 lakh in a mutual fund five years back at an NAV of Rs 20. Now the NAV is Rs 70. How should I calculate my returns on an annual basis?

Compound annualised growth rate (CAGR) will be used here to calculate the growth over a period of time. The gain of Rs 50 over five years on the initial NAV of Rs 20 is a simple return of 250 per cent (50/20 * 100). However, it should not be construed as 50 per cent average return over five years.

Formula: CAGR = {[(M/I)^(1/N)] – 1} * 100

Type in: =(((70/20)^(1/5))-1)*100 and hit enter. M: maturity value; I: initial value; N: time in years. CAGR here is 28.47%.

Also used for: Calculating the annualised returns on a lumpsum investment in shares.

3. Internal Rate of Return

I paid Rs 18,572 every year on a moneyback insurance policy bought 20 years back. Every fifth year, I received Rs 40,000 back and Rs 4.5 lakh on maturity. What was my rate of return?

The internal rate of return (IRR) has to be calculated here. It is the interest rate accrued on an investment that has outflows and inflows at the same regular periods.

In the excel page type Rs 18,572 as a negative figure (-18572), as it is an outflow, in the first cell. Paste the same figure till the twentieth cell. Then, as every fifth year has an inflow of Rs 40,000, type in Rs 21,428 (40,000-18,572) in every fifth cell. In the twentieth cell, type in –18572. In the twenty first cell, type in Rs 4,50,000, which is the maturity value of the policy.

Then click on the cell below it and type: = IRR(A1:A21) and hit enter. 5.28% will show in the cell. This is your internal rate of return.

Also used for: Calculating returns on insurance endowment policies.

4. XIRR

I bought 500 shares on 1 January 2007 at Rs 220, 100 shares on 10 January at Rs 185 and 50 shares at Rs 165 on 18 May 2008. On 21 June 2008, I sold off all the 650 shares at Rs 655. What is the return on my investment?

XIRR is used to determine the IRR when the outflows and inflows are at different periods. Calculation is similar to IRR’s. Transaction date is mentioned on the left of the transaction.

In an excel sheet type out the data from the top most cell as shown here. Outflows figures are in negative and inflows in positive. In the cell below with the figure 4,25,750, type out

=XIRR (B1:B4,A1:A4)*100

Hit enter. The cell will show 122.95%, the total return on investment

Also used for: Calculating MF returns, especially SIP, or that for unit-linked insurance plans.

5. Post-Tax Return

My father wants a bank FD at 10 per cent return for five years. He pays income tax. What will be the returns?

The post-tax return has to be calculated here. The idea is to know the final returns on a fully taxable income. Interest income from the bank is taxed as per your tax slab.

Formula: ROI – (ROI * TR)=Post-tax return

Type in: =10 – (10 * 30.9%) and hit enter. You will get 6.91%

ROI: rate of interest; TR: tax rate (depends on tax slab)

Also used for: Calculating post-tax returns of national savings certificates, post-office time deposits, and Senior Citizens’ Savings Scheme

6. Pre-Tax Yield

My brother says that the investment in public provident fund (PPF), which gives 8 per cent, is the best. Isn’t 8 per cent a low rate of return?

An investment’s pre-tax yield tells us if its return is high or low. The return on PPF (8 per cent) is tax-free. Also, this has to compare with returns of a taxable income to estimate its worth. For someone paying a tax of 30.9 per cent, the pre-tax yield in PPF is 11.57 per cent. At present, there is no fixed, safe and assured-return option that has 11.57 per cent return and a post-tax return comparable to PPF’s 8 per cent.

Formula: Pre-tax yield = ROI / (100-TR)*100

Type in: =8/(100-30.9)*100 and hit enter. You will get 11.57%. ROI: rate of interest, TR: tax rate, (depends on tax slab)

Also used for: Calculating the yield on an Employees’ Provident Fund or any other tax-free instrument.

7. Inflation

My family’s monthly expense is Rs 50,000. At an inflation rate of 5 per cent, how much will I need 20 years hence with the same expenses?

The required amount can be calculated using the standard future value formula. Inflation means that over a period of time, you need more money to fund the same expense.

Formula: Required amt.=Present amt. *(1+inflation) ^no. of years

Type in: =50000*(1+5% or .05)^20 and hit enter. You will get Rs 1,32,664 as the answer, which is the required amount.

Also used for: Calculating maturity value on an investment

8. Purchasing Power

My family’s monthly expense is Rs 50,000. At an inflation rate of 5 per cent, how much will be the purchasing value of that amount after 20 years?

Inflation increases the amount you need to spend to fetch the same article and in a way reduces the purchasing power of the rupee. Here, Rs 50,000 after 20 years at an inflation of 5 per cent will be able to buy goods worth Rs 18,844 only.

Formula: Reduced amt.= Present amt. / (1 + inflation) ^no. of yrs

Type in: =50000/(1+5%)^20 and hit enter. You will get Rs 18,844, which is the reduced amount.

9. Real Rate of Return

My father wants to make a one-year bank FD at 9 per cent. On maturity, he says, the capital will be preserved and he would get assured return on it.

It is true that fixed deposit is safe and gives assured returns. However, after adjusting for inflation, the real rate of return can be negative.

Formula: Real rate of return=[(1+ROR)/(1+i)-1]*100

Type in: =((1+9%)/(1+11%)-1)*100 and hit enter. -1.8% is the real rate of return. ROR: Rate of return per annum; i: rate of inflation (11 per cent here)

10. Doubling, Tripling of Money

I can get 12 per cent return on my equity investments. In how many years can I double or even triple my money?

Formula: No. of years to double = 72/expected return

Type in: =72/12 and hit enter. You will get 6 years. For tripling, type in: =114/12 and hit enter. You will get 9.5 years. For quadrupling, type in: =144/12 and hit enter to get 12 years.

## Sunday, August 17, 2008

### My Movies - 1950s & 60s

There can be two reasons why my earlier post on my movies collection didn't attract enough hits and/ or comments:

1. Not many of you who read/ happened to pass by this blog are into old movies

2. Some of you haven't seen these movies before.

3. Lets add another one - Nobody gives a damn!

So be it. As I promised, here is the list of movies I have from the 50s and 60s.

Now, for my favourites:

Rear Window - Absolutely delicious Hitchcock fare.

On the Waterfront - Marlon Brando all the way.

The Killing - A fantastic no linear coupe movie.

12 Angry Men - By far one of the best male performances ever from just about everybody in the cast. Brilliant.

Vertigo - Again, one of Hitchcock's best according to me.

To Kill a Mockingbird - Having read the book, I was elated with the way the film was made. Very, Very good.

Dr. Strangelove - I never knew Kubrick could be so into black comedies. Fantastic fare with Peter Sellers.

Well, so much for my catalogue. I will come back again with the 1970s later. Meanwhile, I'll go watch 12 Angry Men again...

1. Not many of you who read/ happened to pass by this blog are into old movies

2. Some of you haven't seen these movies before.

3. Lets add another one - Nobody gives a damn!

So be it. As I promised, here is the list of movies I have from the 50s and 60s.

Now, for my favourites:

Rear Window - Absolutely delicious Hitchcock fare.

On the Waterfront - Marlon Brando all the way.

The Killing - A fantastic no linear coupe movie.

12 Angry Men - By far one of the best male performances ever from just about everybody in the cast. Brilliant.

Vertigo - Again, one of Hitchcock's best according to me.

To Kill a Mockingbird - Having read the book, I was elated with the way the film was made. Very, Very good.

Dr. Strangelove - I never knew Kubrick could be so into black comedies. Fantastic fare with Peter Sellers.

Well, so much for my catalogue. I will come back again with the 1970s later. Meanwhile, I'll go watch 12 Angry Men again...

### Is Michael Phelps really the greatest Olympian in history?

Is Phelps eight times greater because swimming decides that getting from A to B in the fastest possible way needs to be subdivided into all manner of bizarre strokes?What if we say to Usain Bolt, Asafa Powell and Tyson Gay that they can win multiple gold medals if they run 100m, then run it while hopping like a roo, then dancing like a chicken, (not a duck, of course, because the locals would soon have them roasted, wrapped in pancakes and covered in hoisin sauce)?

While not taking anything away from the Big Mike, I quite like what the author has to say here...

While not taking anything away from the Big Mike, I quite like what the author has to say here...

## Tuesday, August 12, 2008

### My Fantastic Movies Collection

I am on an extended long weekend break from work so I thought I might as well catalogue my Movies. While at it, I said to myself why not ask you guys what your favourite movies are and discuss mine.

One of the major aims of this post is to find out which movies I've missed out on. I have most of the IMDB Top 250 movies in my collection; at least the ones that appealed to me enough to merit a place in my collection. I find IMDB as a mixed bag really, the site id est. Even though some people find it hard to digest the rankings, I found it to be a nice startng point to build one's catalogue.

Over the course of the next couple of days, I will start posting my collection, decade -wise and hope you guys can enlighten me on what I'm missing out on. I might add here that some movies in my collection aren't there for their cinematic qualities but for the sheer reason of my wanting to watch them.

Lets start with the Pre 1950s:

My personal favourites from the list are :

It Happened One Night

Citizen Kane

and

It's a Wonderful Life

Lets see what your favourites are. I could do with some recommendations. Tomorrow I will post the 1950s & 1960s list.

One of the major aims of this post is to find out which movies I've missed out on. I have most of the IMDB Top 250 movies in my collection; at least the ones that appealed to me enough to merit a place in my collection. I find IMDB as a mixed bag really, the site id est. Even though some people find it hard to digest the rankings, I found it to be a nice startng point to build one's catalogue.

Over the course of the next couple of days, I will start posting my collection, decade -wise and hope you guys can enlighten me on what I'm missing out on. I might add here that some movies in my collection aren't there for their cinematic qualities but for the sheer reason of my wanting to watch them.

Lets start with the Pre 1950s:

My personal favourites from the list are :

It Happened One Night

Citizen Kane

and

It's a Wonderful Life

Lets see what your favourites are. I could do with some recommendations. Tomorrow I will post the 1950s & 1960s list.

## Friday, August 01, 2008

### I'm alive

Just so you all know, this blog is still alive. I'm going to be back with a vengeance soon and there will be a slew of posts; I have ideas banging inside my head already.

Brace yourselves for impact...

Brace yourselves for impact...

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