|A response to Tony's spewings [LONG]|
Message #27 Posted by Karl Schneider on 20 July 2003, 6:06 p.m.,
in response to message #26 by tony
In your last three posts, I can see that you have a certain amount of knowledge about using a TVM program, but I didn't see very much clear analytical thought or coherent writing. Some of your statements even suggest a lack of maturity.
For the record, the name is "Karl", not "Keith" or "keith". No, I don't work for HP or Kinpo, but I have extensive experience with software that is based on iterative solution processes (power flow on an electric network), and passed a course in economic analysis that included TVM and cash-flow analysis.
I would suggest that you deepen your own understanding of the mathematics of TVM, by studying the 12C manual, working through cash flows step-by-step, and perhaps even reading a textbook such as "Engineering Economic Analysis".
I don't have a 12CP, and doubt that I would buy one. It looks like an inept "upgrade", with unrefined algorithms, as well as design changes and functionality enhancements that are ill-conceived.
Here are my responses to just a few the statements in your last three posts:
Ok here is one with PMT=0 where the 12CP gives the wrong answer for i.
n=E7 i=E-14 PV=1 PMT=0 solve for FV=-1.000000001
resolve for i.
Good grief! I asked for a "realistic" application of TVM, and you provide an example with 1 million payments at an interest rate of 0.00000000000001%! That doesn't look anything like an auto loan or mortgage in the real world. Granted, it's interesting to "test the robustness" of the software, but we should be determining how well the 12CP works as an everyday tool.
the 12CP instantly gives zero exactly. the 12C gold gives 9.999999995E-15
So, the 12CP thinks that n*PMT+PV+FV=0, which is incorrect. Here we see the opposite extreme to the 12CP providing no answer in a finite period of time - a wrong answer instantly.
The 17Bii also gives i = 0.00, but this may just represent a choice not to display decimal digits of "I%YR" beyond its limits of precision. BTW, n*PMT+PV+FV=0 is correct if i = 0.
Instead of the perpetuity, which was an example of a loan, let us make this one a savings case with PMT=1, and set "END". Solve for FV=-10,000,001.01 (requires i=E-14)
No, no, no. "END" refers to payments at the end of the period, as is done for loans (e.g., purchase of auto and homes). "BEGIN" refers to payments made at the beginning of the period, as is done for leases (e.g., autos and apartments). It's in the manuals.
sorry I am not too used to using this message board. what I wrote was not just "sentiments". No compound interest problem is really more elementary that any other, but that one is pretty simple, as they go. I really don't know what you mean by realistic - everybody's use is different. TVM is just a calculating engine. If you can input a problem it is nice to be able to resolve for a variable. That's all. It's not a question of "sophistication" is it? It's just a bit strange to get no answer or a wrong answer, particularly where the 12C gold was/is just fine.
I can't find a coherent point in that army of words, but I see what you're trying to say. Your original example was one in which *none* of the calculators is able to compute the exact answer that solves the equation to a close tolerance, because it requires more significant digits than they have. Your original example had N*PMT = 36*PV. That amounts to interest charges 35 times as high as the amount borrowed! Would you buy a house for $200,000, then pay $7 million in interest? Your example was computationally "stiff" (hard to solve) because of this, and it was realistic only to a loan shark.
"Sophistication" in the algorithms involves identification of situations like this, and handling them gracefully, even if the exact answer that meets desired accuracy cannot be obtained with the equations and available precision. The 12CP appears to not to have this sophistication -- it seems to execute the standard equation in an eternal quest for the unobtainable precise answer. The other models pragmatically give the best answer they can, and then stop. "Sophistication" is not equivalent to "complexity".
I would suspect that the 12CP handles routine, conventional problems about as well as the others. Here's one (my auto loan from 1986 -- 12% annual interest (!) with monthly payments):
n=48; i=1; PV=8400; FV=0. Solving, PMT=-221.204218. Can the 12CP re-solve for "i"?
How about this one (a 30-year mortgage at contemporary low interest rates):
n=360; PV=175,000; PMT=-1000; FV=0. Solving, i = 0.46316% (or, 5.558% per year, nominal)
Hi Keith - me again. You really raised a whole lot of issues. Forget about the FV thing. The PV is not at all sensitive to i. You mention N - of course yes that OFTEN is completely inteterminate. None of this is anything special. It's all just standard compound interest, which TVM is designed to handle.
Huh?? It's true that PV is not sensitive to "i" in that problem, but I don't believe that N "OFTEN is completely inteterminate (sic)" -- only in these examples where the function f(n,i,PV,PMT,FV) = 0 is not solved to a close tolerance in the first place.
If you think the 12CP is toggling between two values and just cannot decide which one to choose, which values might these be?
i = 10.00000000 and i = 9.999999999. Compute FV for those values, using a 17Bii or a 10B if you have one.
You said i suggested that the perpetuity thing was elementary, and someone else suggested the same, but you think it is complex. Ok here is a challenge for you. Give us an example that you think is elementary and I'll see if i can convince you it is really incredibly complex.
That doesn't even deserve a response, wise guy.
All the problems are really much of a muchness in this respect.
The reason i said to forget about the FV thing above is that I know that when the 12c solves for i in that case it does NOT use the FV as a focus - it uses the PV.
In order to solve for any one of the five variables, fixed input values of each of the other four is required. It must solve f(n,i,PV,PMT,FV) = 0 for "i". Only in the case of "i" must this be done iteratively; direct anlgebraic equations can be written for the other four variables. That's why they solve faster.
Looking at that one again i would call it not just elemntary, but elementary in the extreme. It is a classic case where the answer is blindingly obvious.
Better look at it again, Tony. Run the cash flows -- A value of "i" such that payment = accrued interest means that FV = -PV, not FV = 0.
Oh, dear, I'm starting to agree with Valentin!!!!
Thanks for your post! keith i hope you don't work for HP or Kinpo!!<G>
Valentin is a lot more intellectually coherent that you are, Tony. Grow up, or at least get some sleep before you post again.
I wish this discussion board had an e-mail list option.
"keith", here, does not.