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Posted by phil scott on August 3, 2008, 4:31 pm
> I'm trying to determine how interest is calculated on an IBond but can't
> get the amount to match the result shown by the calculator at
> TreasuryDirect. =A0Here are the details:
>
> The IBond has an Issue Date of Jan 2007, denomination is $5000. =A0The
> interest is $290 according to the calculator at this link:
>
> http://www.treasurydirect.gov/BC/SBCPrice
> (enter appropriate values, don't need serial number)
>
> As I understand it, that includes a three month delay such that the
> result is as of April 2008. =A0However my calculation does not come out t=
o
> that amount (used two different methods described below). =A0If anyone
> knows how to calculate so it comes out to $290 please show me where I
> went wrong. =A0:)
>
> Month =A0 =A0Infl =A0 Fixed =A0Composit Interest =A0Interest
> =A0 =A0 =A0 =A0 =A0Rate =A0 =A0Rate =A0 =A0Rate =A0 Method1 =A0 Method2
> ------ =A0----- =A0 ----- =A0------ =A0 ------- =A0 -------
> Jan-07 =A01.55% =A0 1.40% =A0 4.52% =A0 =A0 18.84 =A0 =A0 18.67
> Feb-07 =A01.55% =A0 1.40% =A0 4.52% =A0 =A0 37.68 =A0 =A0 37.40
> Mar-07 =A01.55% =A0 1.40% =A0 4.52% =A0 =A0 56.52 =A0 =A0 56.21
> Apr-07 =A01.55% =A0 1.40% =A0 4.52% =A0 =A0 75.36 =A0 =A0 75.08
> May-07 =A01.55% =A0 1.40% =A0 4.52% =A0 =A0 94.20 =A0 =A0 94.03
> Jun-07 =A01.55% =A0 1.40% =A0 4.52% =A0 =A0113.04 =A0 =A0113.04
> Jul-07 =A01.21% =A0 1.40% =A0 3.84% =A0 =A0129.39 =A0 =A0129.26
> Aug-07 =A01.21% =A0 1.40% =A0 3.84% =A0 =A0145.74 =A0 =A0145.53
> Sep-07 =A01.21% =A0 1.40% =A0 3.84% =A0 =A0162.09 =A0 =A0161.86
> Oct-07 =A01.21% =A0 1.40% =A0 3.84% =A0 =A0178.44 =A0 =A0178.23
> Nov-07 =A01.21% =A0 1.40% =A0 3.84% =A0 =A0194.79 =A0 =A0194.66
> Dec-07 =A01.21% =A0 1.40% =A0 3.84% =A0 =A0211.13 =A0 =A0211.13
> Jan-08 =A01.53% =A0 1.40% =A0 4.48% =A0 =A0230.60 =A0 =A0230.42
> Feb-08 =A01.53% =A0 1.40% =A0 4.48% =A0 =A0250.06 =A0 =A0249.77
> Mar-08 =A01.53% =A0 1.40% =A0 4.48% =A0 =A0269.52 =A0 =A0269.19
> Apr-08 =A01.53% =A0 1.40% =A0 4.48% =A0 =A0288.98 =A0 =A0288.69
>
> All calculations are based on the information shown here:
>
> http://www.treasurydirect.gov/indiv/research/indepth/ibonds/
> res_ibonds_iratesandterms.htm
>
> Fixed rate for the IBond is:
> NOV 1, 2006 =A0 =A0 1.40%
>
> Inflation rates are:
> NOV 1, 2006 =A0 =A0 1.55%
> MAY 1, 2007 =A0 =A0 1.21%
> NOV 1, 2007 =A0 =A0 1.53%
>
> Also can be found at the above link is the composite rate calculation:
>
> Composite rate =3D [Fixed rate + (2 x Semiannual inflation rate) + (Fixed
> rate x Semiannual inflation rate)]
>
> Calculation Method 1 is semi-annual compounding with (composite rate)/12
> monthly payments.
>
> Calculation Method 2 is semi-annual compounding with monthly payments as
> described here:
>
> http://www.savings-bond-advisor.com/savings-bond-interest-rate-
> calculations/
>
> "For the first rate period, the actual value at the beginning of the mont=
h
> after issue is:
>
> Initial Value * (1 + (rate/2) )^(1/6)
>
> For the rest of the months in the rate period, change the final exponent
> to 2/6, 3/6, and so on up to 6/6. Round these values to two decimal
> points. This gives you the actual value of a hypothetical $25 bond of
> either series for each month of the first rate period.
>
> For the second and later rate periods, the calculations are exactly the
> same, but now the initial value is what the bond was worth (rounded to tw=
o
> decimals) at the end of the prior rate period."
nah...thats not how you do it these days.... in the past yes, thats
how you did it.
but not today with govt lying about the actual inflation rate with is
well over 20% a year now... go shopping, buy some gas... its not 2.3
or 4% CPI.. they lie.
then they pay 4% or whatever on bonds.... you are being ripped off for
15% or so.
thats just how it is...
the recent mortgage holder bail out, while I applaud it, will just
make matters exponentially worse..and fast.'
it did preclude an instant run on all the banks however.
Phil scott
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