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It's all in the numbers... (archive)

[ Follow Ups ] [ 3-series (E46) Message Board ] [ Msg. Board FAQ ]

Posted by Larry in TN on October 05, 1999 at 23:42:45:

In Reply to: Re: It's all subjective. Neither one of you is posted by Because its subjective. on October 05, 1999 at 23:24:40:

: Example 1: If I take my 35K and double it over 4 years, even after 50% tax I am better off by about $8k than financing the car for 48 months. So in this scenario you are incorrect.

That's all fine and good if you have a crystal ball and can predict what your investment will do over the next five years. The simple fact is that you can't predict where the market is going. That's why you use Beta and risk-adjusted returns when deciding how to invest money in the future.

If you're going to take money that could be "invested" risk free and instead put it in a volitile investment then you'll expect a rate of return that is enough above the gaurenteed rate of return to compensate you for having taken that additional risk. That's what beta does. It let's you evaluate the relative risks of different investments.

To double your money in four years you'd need an after-tax rate of return of 18%. If you're in the 28% federal tax bracket, and 4% state bracket, you'll need a 26.5% return to produce that 18% after-tax return.

No one can predict the future but we can look at historical returns and say that expecting a 26% ROR over the next four years is foolish. We all hope we'll get that but we don't plan on it.

With 6%+ rates on BMW car loans the math simply doesn't support financing. There's nothing subjective about it.


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