Formulas & Calculations

Question 1

What is the formula to figure out the exclusion ratio?

This is the ratio used when IRAs etc have a phase out range.

Answer 1

1. Take the tax payers income and and then subtract the first phase out income.
2. Subtract the lower phase out range by the limit range to get the phase out range
3. Divide the number and one by the number and two to get the exclusion ratio.

Example:

Single taxpayer with income of 100,000 would like to invest in a Coverdale.

Single taxpayer phase out range is $95,000-$110000

First subtract 95,000 from 100,000 equals $5000

Second subtract 95,000 from 110,000 to get $15,000 (that is the range of the phase out)

Last divide 5000 by 15,000 and you get 33%

33% is the amount that is phased out

Question 2

What is the 3 Step method for determining Education Funding?

Answer 2

1st: Determine the future cost of college for the 1st year

PV = 1st yr school todays dollars
I/YR = Rate School will increase
N = number of years until start
Solve for FV

2nd: Determine account balance necessary to find college

Beg. Mode (need number at start of school
+/- PMT = FV from step 1
I/YR = [(1.0r / 1.0i) -1] x 100 Inflation rate adj return
N = number of years of college
Solve for PV

Step 3: determine required savings payment

End Mode
FV = PV solved from step 2
N = number of years until needed
I/YR = rate of return
Solve for PMT

Question 3

What serial payment should client invest at the end of the 1st year to attain his goal?

Serial Payment to achieve a future sum-compouded annually

Answer 3

1st Figure out payment to achieve the goal

FV = Future value needed
N = Number of year until needed
I = Inflation adj. return [(1.0r / 1.0i) -1] x 100
Solve for PMT then multiply by 1.0i

i = Inflation rate
r = rate of return

Question 4

How do you figure how much interest or principal for a given time, etc. in a mortgage payment?

Answer 4

1st: Solve for PMT

2nd: Then for whatever timeframe in months

Example: If you want to know the interest after the 1st 6 months

1 input 6 Amort (1st 6 mos of loan)

If you want to know from 7 to 18 months of the loan

7 input 18 Amort

Then use the = key to scroll though options

Question 5

How do you calculate standard deviation of a historical returns using a financial calculator?

Answer 5

Question 6

What is the capitalization formula?

Example

Client needs $15,000 per year and assumes the fund can earn 6% annually, how much will they need?

Answer 6

$15,000 / .06 = $250,000