Choosing the Best Mortgage

Choosing the Best Mortgage

Some old rules of thumb can help you figure how much you can afford

Choosing a mortgage used to be simple a one-kind fits all proposition. No longer. New choices are continuously being introduced. Deciding which one will work best requires that you make some guesses – how long you will live in the house or what your income will be in future years, for example.

The old rule of thumb was that you could qualify for a mortgage if you had a “housing ratio” of 28 percent or lower. Your housing ration is the percentage of your gross monthly income that you’ll need to spend on housing expenses like taxes, insurance and the mortgage itself. Your total obligation ratio should come in below 38 percent. It is the portion of your income that goes to both housing expenses and any other obligations like credit card debt, car loan and child support.

The catch is, these ratios are no longer inviolable. Some lenders have more lenient standards – a housing ratio of 33 percent, say, and a total obligation ratio of 38 percent. To find out what different lenders’ ratios are, all you have to do is ask. If you come in over 28 percent threshold in some years but not others, you might look for a “non-income verification” loan. These are designed for self-employed people, who often have a hard time showing a steady income. Bankers generally require 25 percent of the purchase price – on other loans 20 percent or even less is acceptable. Typically, non-income verification loans also have a slightly higher interest rate. You can sometimes get around the total obligation ratio simply by shifting your finances around. You might stretch out a car loan so that you have lower monthly payments.

The reason lenders are so particular about the 28 percent and 26 percent ratios is that they sell must of their loans into the secondary markets. Fannie Mae and Freddie Mae, two quasi-governmental organisations, are two of the biggest marketers of mortgages and they set the standards. A local bank of S&L might be willing to make an exception for clients who don’t confirm.

How much income you need to get a mortgage? Photograph: Megan Jorgensen (Elena).

Entertainment Industry

Entertainment Industry

The movie industry is sometimes referred to as the entertainment industry, together with video games, music, spectacles and other forms of amusement. Movies have different paths. Public exhibition in theatres is the outcome for some, straight to television or DVDs – for others. Indirect profits are also being made with such franchises as wellknown in the past Planet Hollywood, the theme restaurant chain jointly owned by Sylvester Stallone, Bruce Willis, Arnold Schwarzenegger and Demi Moore.

The science fiction genre main players would have to be the theatrical series Terminator, RoboCop, Star Trek, Transformers, and X-Men with Hugh Jack man as Wolverine. Avatar has captivated many a mind with its flying mountains, blue aliens and 3D effects. Fantasy movies include The Lord of the Rings trilogy, Chronicles of Narnia, Harry Potter movies and Stardurst, where the beautiful blonde blue-eyed Michelle Pfeiffer plays ancient witch Lamia.

Many animated works display magic, medieval décor as well as paranormal activity. Walt Disney, after whom the first animation studio was named, has its own worldwide known characters: Mickey and Minnie Mouse, Donald and Daisy Duck, Pluto, Goofy, etc. While the animated series from those days are rarely viewed today outside collector circles, the Disneyland parks are there to remind you of the Disney Miracle. A primary destination for children, there is a Disneyland in Europe (Paris, France) and in North America (US, California) that recreate the many memorable characters of Walt Disney’s productions (The Little Mermaid, Bambi, The Lion King, Aladdin, Pocahontas).

New York Police Department. Photo by Elena.

Warner Bros West Coast Studios were founded in 1918. Movies evolved dramatically (no pun intended) from being black and white and silent, with some deficiencies in frames that made actors look as if they moved too fast, to today’s packed with special effects, loud and colourful cinematographical works.

Some of the classic Hollywood fundamentals were Casa Blanca (Ingrid Bergman, Humphrey Bogart), Gilda (Rita Hayworth) and Gone with the Wind (Vivien Leigh). Classic Italian movies are Dolce Vita with Marcello Mastroianni, The Hunchback of Notre Dame with ravishing Gina Lollobrigida as Esmeralda and Life is Beautiful with distinguished Ornella Mutti.

By the way, Montreal has many great cinemas. Back in the day, there used to be a cinema on Sainte-Catherine, right at the watch store next to present day Guido & Angelina restaurant, where you could see a movie for only $2. The only catch was that it came out 6 months too late, but hey, Europe and North America usually have an approximate 6 moths of filmographical jetlag anyways…

Meeting Preparation

Meeting Preparation

Despite the digital revolution, the business meeting remains a place where billions of dollars of revenues change hands every year. Indeed, meeting in person enables you to build a strong personal relationship with people who can become a very useful part of your network. Whether it is a client meeting, or a job interview, performing well is important. Your behavior increases greatly your chances and pre-meeting preparation can be crucial to success in business.

The rules are quite simple:

Pre-meeting preparation:

– Before the meeting send an e-mail confirmation, or an invitation confirming the meeting. Do so as early as possible to all concerned and involved.

– Carry out market research on the company and executives.

– Diligently work on anything that has been asked of you and respond to any request of information.

– Canvass people you know who have knowledge of the company or the sector in advance for advice. Use this information to begin forming key messages to communicate in the meeting.

Times Square is always crowded. Photo by Elena.

– Prepare a presentation on your company, and try to anticipate anything else that the client may find useful.

– Plan an agenda for the meeting: (add location, attendees, date, start and end time. Introductions – 10 min., briefing of project – 5 min, proposed project methodology – 10 min., questions and answers – 10 min., agreement on next stops – 10 min., etc.)

Arrive 10-15 minutes early for the meeting, so that you are calm and have not had to rush to get there. Give a summary of that a going to be talked about and briefly go over the points of the meeting.

On a sales meeting, take notes on everything the client says, which will give you a full understanding of the client’s needs that you can refer back to later.

Following the meeting, write up your notes and store them. Then send a summary to all attendees, highlighting the key points discussed and the next steps to be taken.

At the meeting never be pushy, but politely and courteously prompt people into action. Busy professionals have many priorities and you will need to remind and prod them toward your objectives. If they reject your offer, be gracious in defeat and politely thank them for their consideration, leaving the door open for another opportunity in the future.

Record everything you do. During your life you can build a database of thousands of contacts. Record every single interaction you have on a Client Relationship Management system (CRM).

Business Essay: Business & Marketing

Business Essay: Business & Marketing

The purpose of this essay is to write a brief overview of the main concepts of business and marketing, as far as it is possible in such a short entry. Similar to psychology students who must undertake introductory level courses in neuroscience,cognition and perception, business and commerce students have to study business statistics (psychology students also!), business communication, organizational behaviour and introduction to marketing. Indeed, before getting started on the core courses of, example, a finance major, one must understand the basics of related disciplines.

In a shell, marketing includes, but is not limited to, sales and advertising. The 4Ps of marketing, or the marketing mix, refer to production, price, product and promotion. Clearly, aside from generating a product with valuable features to consumers, with an affordable yet reflecting the cost (and often the quality and prestige) of the product or service, price; such aspects as channels of distribution, as well as, making the availability of the product known to the target audience comprise important topics of an introductory level course in marketing. Additionally, marketing basics such at the product lines grid developed by the Boston Consulting Group (BCG) classifying product offerings combinations into stars, cash cows, dogs or question marks are discussed, among other things.

Business students, as psychologists have shown, often have a more material and pragmatic orientation than their art history counterparts, according to at least one study. Similarly, when one browses online job boards today, business degrees seem to be more in demand than pure liberal arts degrees, since sales remains a much larger field than, to illustrate, intervention in gambling addictions.

New York streets. Photo by Elena.

Indeed, finance and accounting majors look at many potential certifications to choose from (as long as they fulfill the educational and work related experience requirements of regulatory bodies), such as the CFA (Chartered Financial Analysts), CPA (Certified Public Accountant), which used to be further subdivided into CA (Chartered Accountant), CMA (Certified Management Accountant) and CGA (Chartered or Certified General Accountant). A popular academic route for commerce students to embark on, is to complete their MBA (Masters of Business Administration) degree, a substantial graduate addendum to a bachelor of commerce (BCom) or bachelor of business administration (BBA).

The purpose of the present paper was to outline the main theoretical constructs in business and marketing, especially as they related to education. However, interestingly enough, however, employers may look for several other critical skills in making decisions regarding potential hires. For example, in addition to work experience and/or educational background, important skills, such as organizational, communication, time management, analytic and other abilities, such as business acumen and interpersonal qualities leading to establishing and maintaining positive relationships with clients and customers, may be of equal, if not at times of greater, importance to human resources (HR) mangers and recruiters. Luckily, many resources exist to discuss typical interview questions, cover letter and resume writing tips, and other important issues in finding and securing gainful employment.

Marketing Theories

Marketing Theories

If I had asked customers what they wanted, they would have said ‘a faster horse’ – Henry Ford

Almost any introductory level marketing course will start with the explanation of the marketing mix, or the 4Ps, mainly place, promotion, product and price. However, besides this core aspect of the social discipline, professional marketers look at many aspects to promote a business or a non-profit organization, goods and services, or even an idea.

As Crane et al. (2011) explain, the most important questions a producer must answer to be successful is what does the customer want. As a brief reminder, for marketing purposes, need are defined as deprivations of basic necessities, while wants are the form those needs take according to one’s culture and past experiences. Thus, the goal of the marketer is to find out what they are, and then shape the customer’s wants. Typically, a marketing plan must be developed, implementation of which facilitates commercial growth. Also, there are four lines of growth: product development, market penetration, market development and diversification. Diversification, in turn, could be related or unrelated to the industry the organization is currently in. Competitive advantage and points of differences must also be kept in mind. Additionally, Eliaz & Spiegler (2011) write that in modern, given the quasi-infinite number of available alternative, positioning (differentiating a product from those of competitors and influencing how it is perceived by consumers) became even more significant for success. The authors also point out an amazing fact: marketing cannot change consumer preferences, as they are set. One assumes that the statement is not to be understood simplistically, but as related to truths such as impossible need creation (no matter how amazing an advertisement, a bald person will refrain from buying hair conditioner).

Naturally, it is impossible for a company to satisfy everybody. Therefore, the focus should be on the target market or target audience, those customers most likely to be interested by the product offered.

I don’t know the rules of grammar… If you’re trying to persuade people to do something, or buy something, it seems to me you should use their language, the language they use every day, the language in which they think. We try to write in the vernacular. David Ogilvy(1911–1999), British advertising executive. Image: © Elena.

Interestingly, Crane et al. (2011) note that companies have undergone major changes in this century and the last. For example, in the beginning of the 20th century the focus was on production, then it turned to sales, and finally centered more on the market and the customer. The latest development, and the most important of these is believed by many, to be the transition the social media marketing era. Today, most organizations try to develop an online presence of some sorts. Further, popularity of social networking platforms such as Facebook, twitter and MySpace have resulted in a sort of customer based marketing. On these sites, as well as on YouTube, blogs, wikis, podcasts and other resources, individuals can act as remote promoters (or demoters) of brands they like (or dislike). Of course, this new ability at mass broadcast by the public has also created problems for some companies who have less control on commentaries published about them. But there is also a positive side. To illustrate, most software publishers offer tutorials on their websites which both facilitates use of their programs (increasing customer satisfaction) and enhances customer experience (a key point in the new marketing era). Logically, product placement on popular television shown or brand endorsements by celebrities represent additional means corporations possess to advance their offerings.

Given increased emphasis on customers and customer relationships building and management, information became even more important. Countless psychologists and marketers engage in trend research everyday. CRM (Customer Relationship Management) software to keep databases organized has gained prominence, while KM (Knowledge Management) is now a business and management field in its own right. Nonetheless, relationships differ, and purchasing behavior may vary according to state (Kumar et al., 2011).

Regardless of theories, to succeed a product must appeal to customers. For instance, the textbook authors give examples of failed products (such as Coca-Cola’s C2 or Pepsi’s Blue), which went away despite good marketing campaigns because people simply failed to enjoy it.

Obviously, advertising and related activities must be socially responsible. Also, social marketer refers to marketing that is done to promote something that benefits society at large, or at least someone else than the marketer. To illustrate, McKenzie-Mohr (2000) describes how community based social marketing could bring about more ecologically sound behavior, thusly in time, helping the environment. A similar idea was voiced by U.S. Sen. Claire McCaskill Senator on the Daily Show with John Stewart, who proposed resolving national postal service troubles by a campaign glamourizing the written letter. Potentially, one could argue that such a stance likewise constitutes social marketing.

SWOT analysis is widely used in marketing projects. Image: Copyright © Megan Jorgensen. (Elena). The SWOT (Strength, Weakness, Opportunities and Threaths) analysis is a strategic planning technique. According to Wikipedia, it was developed by Albert Humphrey. The first two components represent factors internal to the business, while the last two are external to the firm.

References:

    Crane, F. G., Kerin, R. A., Hartley, S. W. and Rudelius, W. (2011). Marketing, 8th Can. Ed. McGraw-Hill Ryerson: United States of America.

    Eliaz, K. & Spiegler, R. (2011). Consideration sets and competitive marketing. Review of Economic Studies, 78: 235-62.

    Kumar, V., Sriram, S., Luo, A. M. and Chintagunta, P. K. (2011). Assessing the effect of marketing investments in a business marketing context. Marketing Science, [forthcoming]: 1-48.

    McKenzie-Mohr, D. (2000). Promoting sustainable behavior: An introduction to community-based social marketing. Journal of Social Issues, 56 (3): 543-54.

Copyright © 2011 Megan Jorgensen. All rights reserved.

Financial English-German Glossary

Financial English-German Glossary

The present Website or blog contains several articles on economics, business, finance, management and even neuromarketing (a mix of neuroscience and marketing). The following section presents some commonly used financial terms in English, and one variant of their corresponding translation in German.

Financial English-German Glossary

Finanziell Englisch–Deutsch Glossar

Accountant – Buchhalter

Accounting –Buchhaltung

Administration – Betriebswirtschaft

Bank – Bank

Banking – Bankwesen

Bond – Verzinsliches Wertpapier

Bookkeeper – Buchhalter

Business – Geschäft

Buy – Kaufen

Capital – Kapital

Chief Financial Officer (CFO) – Chief Financial Officer (CFO)

Commerce – Handel

Comptroller, Financial Controller – Auditor

Corporation – Gesellschaft

Debt – Schuld

Dividends – Dividenden

Economics – Ökonomie

Economist – Wirtschaftswissenschaftler (auch Ökonom)

FDI (Foreign Direct Investment) – Ausländische Direktinvestitionen

Finance – Finanzen

Goodwill – Geschäfts- oder Firmenwert

Industry – Industrie

Interest – Zins

Investment – Anlage

Investor – Anleger

Loss – Ausfalll

Management – Unternehmensführung

Manufacturer – Fabrikant

Merchandiser – Kaufmann

Money – Geld

Mortgage – Hypothek

Nonprofit Organization – Non-Profit-Organisation (NPO)

Organization – Organisation

Pay – Bezahlen

Portfolio – Aktentasche

Production – Produktion

Profit – Gewinn

Refinancing – Refinanzierung

Sell – Verkaufen

Shares, Stocks – Aktien

Stock Broker – Börsenmakler

Store, Shop – Laden

Tax – Steuer, Besteuerung

Trader –Händler

The basic financial accounting equation:

A = E + L or Assets = Equity + Liabilities

Die grundlegende Finanzbuchhaltung Gleichung:

A = E + P oder Aktiva = Eigenkapital + Passiva

Sunset in Jamaica. Photo by Elena.

Cheap Flying

Do’s and Don’ts of Cheap Flying

Coupons, regional airlines, and “split fares” can save your money

As the editor and publisher of Best Fares magazine, Tom Parsons has been studying the ins and outs of airline pricing and helping travelers fly cheaply since 1983. Here Parsons gives some money-saving tips:

Do:

Search for and use discount coupons. Parsons says that airlines offer 350 to 400 unadvertised and unpublished travel deals every year. Most can be had by redeeming discount coupons that are distributed by retail outlets and with specific products. An example: people who bought three rolls of Kodak film at a Walgreens Drugstore recently could request a mail-in certificate redeemable for four $60-off coupons on American Airlines. This sort of coupon can usually be used during fare wars to further reduce already low prices.

Look into niche and regional airlines. Several small upstart airlines like Tower, ValuJet, Kiwi now offer services between select areas at very low prices. They concentrate on specific pockets, usually only a handful of cities, and discount prices to make up for their lock of name recognition and to encourage passengers to fly the short haul rather than drive.

Take advantage of “split fares”. Surpirsingly, splitting fares may enable a traveler to combine two cheap tickets for much less than the cost of the original single ticket, especially with the aforementioned rise of niche markets. Rather than buying a single ticket from Dallas to Kansas City, for example, Parsons suggests that a consumer look into flying from Dallas to Tulsa, Oklahoma, and then from Tulsa to Kansas City.

Consider flying to and from alternative cities. Some air routes are significantly cheaper than others. If you are willing to make the journey to and from an out-of-the-way airport before and after a long trip, you be able to save big. A one- or two-hour drive, according to Parsons, can take as much as 70 percent off of a single ticket price. Washington, D.C. flyers should consider making the trek to nearby Baltimore, and Chicago flyers should look into flying by way of Milwaukee.

Use cheap flights to get to the most beautiful destinations. Photo by Elena.

Don’t:

Don’t buy tickets immediately. Many discount fares need only be purchased 14 days in advance. Buying sooner may simply mean a loss of future savings. People who buy early can’t get any money back when prices drop. Buy tickets immediately only if you wish to travel during busy holidays like Christmas or New Year’s Day.

Always pick a flight time.  Tell travel and reservation agents that cheap is more important, than, say, arriving at nine in the morning. The relationship between time and cost is not always obvious, so you should inquire about the least expensive times to fly a chosen route – sometimes cost more than others, and some special fares only apply at specific times.

The guy sitting next to you paid less:

The price of an airline seat isn’t locked till the plane leaves the ground. Below is a snapshot of what people paid on a recent American Airlines flight from Miami to New York on take0off0the average fare: $196,89.

Coach: $109,26. Advance purchase, usually with a Saturday stayover. $457 Full fare. $118.06. Group rate for meetings, conventions, or vacation packages.

First Class: Frequent flyers using free tickets. $657 Full fare. Empty seats, $379.83. Upgraded fare for passengers  frequent-flyers upgrade program.

$129.83. Special fare for senior citizens and government and military employees.

Free: Frequent flyers using free tickets. $260.43. Assorted rate for travel agents, contest winners, promotions, and passengers whose tickets were mutilated or could not be identified.

(Source, American Airlines).

 In search of peanut fares: Upstart airlines are making a name for themselves by offering cheap fares on selected routes.

Airsout (hub Columbia, S.C.) Majoir U.S. cities served Atlanta, Jacksonville, Miami, Myrtle Beach, Raleigh Durham, St. Petersburg, Tallahassee.

American Trans Air (hub Indianopolis) Boston, Chicago, Milwaukee, St. Louis

Carnival Air: Doesn’t operate on a hub system. Ft. Lauderdale, Los Angeles, Miami, Newark, New York, Tampa, West Palm Beach.

Frontier: Hub Denver. Alburquerque, El Paso, Fargo, Missoula, Omaha, Las Vegas.

Kiwi International: Hub Newark. Atlanta, Chicago, New York, Orlando, Tampa.

Midway. All flights go through Raleigh-Durham. Boston, Chicago, Fr. Lauderdale, Hartford, Philadelphia, New York, Newark, Orlando, Tamps, Washington, D.C.

Reno Air. Hub: Reno, San Jose. Anchorage, Chicago, Las Vegas, Los Angeles, Phoenix, Portland, San Diego, Seattle, Tucson, Vancouver.

Spirit: Detroit, Atlantic City. Atlantic City, Boston, Ft. Lauderdale, Orlando, St. Petersburg.

Tower Air. Hub New York (JFK). Los Angeles, Miami, New York, San Francisco.

Valujet. Atlanta. Chicago, Columbus, Dallas-Fr. Worth, Detroit, Ft. Lauderdale, Ft. Mayers, Harford, Indianapolis, Jacksonville, Louisville, Memphis, Miami, Nashivlle, New Orleands Oralndo Philadelphia, Raleigh Durham, Savannah, Tampa, Washington, D.C.

(Old News from 1994)

Studying Business, Management and Commerce

Studying Business, Management and Commerce

CV, resumes and cover letters… a much valuable and valued written message, especially for business students. Indeed, business, management and commerce students are among those who benefit mostly from introductory courses, since those are the classes and lectures which teach future managers to write CVs, resumes and cover letters. In contract, introductory courses in such as area as psychology, represents perception and introduction to behavioural neuroscience, which hardly prepares one for the job market, at least from the CV writing perspective.

So what do business students study in introductory courses aside from guidelines on how to write a proper cover letter and how to answer interview questions? Of course, the answers go beyond the scope of the present paper, but introductory courses in a typical bachelor of commerce program include Introduction to Marketing, Business Communication and Introduction to Business Statistics, among other things.

Studuying Business, Management and Commerce.  Photo by Elena

Introduction to Marketing covers such as basic concepts as the Marketing Mix or product, price, place and promotion; referring to the fact that in order to be valuable to consumers a product or service must first be invented (research and development), then patented and produced (hence microeconomics and costs of production), then its existence and availability has to be broadcasted to the target audience (potential consumer base) and, finally, the product or service must be sold. Adequate pricing corresponds to adequate demand, an economics concept.

Thus, economics, and supply and demand represent the buyers and consumers’ preferences for a given product or service. Firms stay in business to make money and, consequently, adjust production accordingly. Also, any business, no matter how great the business idea, requires a healthy cash flow to succeed. Indeed, all business operations involve expenses, such as advertisement, administrative and selling expenses, and factory overhead in manufacturing firms. Hence, microeconomics studies the behaviour of individual firms, such as fixed and variable costs of production. Alternatively, macroeconomics focuses on behaviour of large economic entities, such as nations (GDP), central banks and large, multinational corporations.

Structuring a sales call

Structuring a sales call and an e-mail

When you make a sales call, you should structure your call as follows:

1. State your name and company: give your full name and company name so the client knows whom he is dealing with.

2. Ask if he (or she) has a moment to speak? In fact finding out if someone has time to speak to you is common courtesy. The client may be in the middle of working on a project and should not be expected to drop everything because you called. If he does not has time, ask for a specific time to call back. Make sure you do call back at this time, as this proves you are reliable.

3. Keep in mind elevator pitch. That’s give your pitch as succinctly as possible, speaking clearly so that the executive can follow each point (the term elevator pitch is used because it should be possible to describe it to a CEO whom you bump into in an elevator).

4. Make your value proposition – highlight the benefits of what you are selling. Many researches show that doing so you should mirror the speech patterns of the person to whom you are talking. So, if you call a trader at a bank and they speak slowly, you should also speak slowly. If a person speaks carefully, you should do the same. Support your value proposition with real references in order to gain competitive intelligence.

5. Try to get the executive to talk to you and the more the executive talks, the better. This will provide you with more information of what the company needs, while also building an affinity between both of you. From a practical point of view that means that they have invested their time and they are therefore more likely to continue that investment.

New York, New York. Photo by Elena.

6. Meeting in person enables us to build a strong personal relationship and therefore helps to complete a larger deal. Thus it’s always convenient to meet and discuss items.

Structuring an e-mail

The benefit of working remotely is that you can achieve a higher volume of interactions in less time.

Today’s technological advances mean that many of the aspects of a face-to-face meeting are now available remotely, and e-mail has become a primary form of communication in the modern world and one of the most powerful sales tools, as succinct, brief, coherent e-mail is an excellent vehicle for a sales pitch. Some ground rules exist though when structuring your e-mail:

– An e-mail you send must be personalized to be effective. The person you target must see that this is not a spam.

– Summarize your value proposition and pitch it in one sentence. A busy person should scan the first line of your letter and understand exactly what you want.

– Present the opportunity to the company, as presenting the opportunity to a company is less likely to be discharged.

– Elaborate on the one sentence pitch you gave in the first line. Add two or three clear sentences on the resource, process and time expectations of the client (the opportunity draws on resource… follows process… takes amount of time).

– Give two or three examples or recent projects you have done in the client industry.

– You may want to attach a comprehensive presentation

– Show courtesy and underline that you are willing to provide a professional service that will meet the professional needs of the client.

– Add all contact details.

– Add credibility to your signature by adding qualifications and awards. This helps your credibility and this is a free advertising for you and your project.

Mathematics for Management

Managerial Mathematics

By Dr. Megan Jorgensen

Together with financial accounting, managerial accounting is taught as an introductory course in most accounting, finance and other Bachelor of Commerce majors and realted programs. The expression CMA (Certified Management Accountant) represents a professional accounting designation for accountants specializing in managerial and corporate areas. For example, an associated professional order, the CIMA (Chartered Institute of Management Accountants), released a report on the Balanced Scorecard (BSC). The BSC, together with the just-in-time inventory and FIFO (first-in-first-out) methods, if and when prescribed by the GAAP (Generally Accepted Accounting Principles) help to keep a commercial enterprise on track.

Academic prerequisites to managerial accounting usually include at least two of the following: Calculus I, Calculus II and Linear Algebra, as well as financial accounting. Conversely, a general management graduate diploma would require a specialized mathematical course. Such classes shed light on formulas on how to calculate the real rate of return, the interest rate on promissory notes and other topics in mathematics for management and finance. Most mathematics, statistics and accounting textbooks contain solutions to quantitative problems, which greatly aids learning. Also, successfully completing actuarial lectures without appropriate practicing is virtually impossible.

Can mathematics prevent us from seeing ghost cities? Photo by Elena.

To illustrate, in a book compiled by Lau (2008), the present value of an interest-bearing promissory note is explained. The face value, or principal, of promissory notes can be derived using the following formula:

P = S/1+rt

Where,

P= present value of note when issued

S = maturity value

R = interest rate

T = interest period

References:

• Lau, H. (2008), selected and arranged by. Mathematics for Management: Second Custom Edition for McGill University. Pearson Learning Solutions: Boston, MA.
• Qu, S. Q., Cooper, D. J., & Ezzamel, M. (2010). Creating and popularizing a global management accounting idea: The case of the Balanced Scorecard. Chartered Institute of Management Accountants, 6 (3): 1-8.

Copyright © 2015 Megan Jorgensen. All rights reserved.

Financial Markets

Financial Markets

To get a job in finance, one highly benefits from field experience with securities and financial markets, investments and trading. Real estate is typically discussed in finance courses as well. Finance careers include financial analyst, trader and broker. Further, financial markets offer a range of lucrative employment prospects. To get a job in finance, one highly benefits from experience with securities and financial markets, investments and trading. Real estate is typically discussed in finance courses as well.

Types of financial markets include capital markets, commodity markets, bond markets, money markets, derivatives markets, futures markets, insurance markets and foreign exchange markets. Further, capital markets comprise  primary and secondary markets.

One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute (William Feather, an American Publisher and author, born in 1889 and passed away in 1981). Illustration : Megan Jorgensen (Elena).

Typically, investments include long-term and short-term investments. Financial institutions, such as banks, manage investments for their customers. An array of invested funds are called a portfolio and may include stocks, bonds or a combination of stocks and bonds. Moreover, bonds refer to debt, while stocks correspond to traded shares of a public company. A healthy cash flow is vital to any company doing business, and raising funds is one of the main concerns of any business firms. Therefore, capital may be raised by loans or debt (liabilities) or shares (shareholders’ equity). Also, the first time a company sells its shares is called an Initial Public Offering (IPO). Initial public offerings are sold in primary markets. In contrast, security trading takes place in secondary markets. Naturally, fluctuations in the market may result in invested capital decreasing or increasing in value over time. Stocks are traded on stock exchanges, while currency exchange refers to international capital flow and exchange.

Alternatively, to obtain a loan, it is quintessential to have good credit or be in good standing with credit rating agencies. Finally, market fluctuations may lead to capital gain or loss.

Also, an investment portfolio is chosen based on the consumer’s needs, such as saving to buy a house, as well as, tolerance to risk. Consequently, risk averse investors tend to favour conservative investing, while risk tolerant investors prefer aggressive investment strategies. Qualified financial advisers or financial planners may be very helpful in dealing with these matters.

Credit

Credit

If one wanted to simplify accounting to one equation, it would be: A = E + L, where A stands for assets, E for shareholders’ equity and L for liabilities. Liabilities are money that one owes, or outstanding debt and loans. One example of a liability is a mortgage. While the real estate market has been greatly affected by the subprime mortgage crisis, buying houses, condominiums and other residential properties remains an attractive alternative to renting, for those who can afford it.

So how does it work? Homes and condos can be purchased directly from the owner, but people usually go through a real estate agent. Similarly, a mortgage may be obtained directly from a bank or other financial institution, or through the intermediary of a mortgage broker (some believe it may result in lower interest rates). Usually, there is a down payment, a percentage of the total cost of the property, and the rest is covered by a mortgage, a loan from the bank. As a general rule, banks will only lend money to those with steady jobs, adequate income given the funds to be borrowed, and a good credit history.

Nonetheless, having good credit may result in borrowing too much. For example, someone with an excellent credit rating may be offered credit limits well beyond what they initially planned to spend, maxing out their credit cards or overdraft accounts, and ending up with large debts. Then, unpaid debt could lead to financial woes, such as bad credit and problems with collector agencies.

Alternatively, very small commercial loans are gaining popularity in the developing world, allowing entrepreneurs to start small businesses. The practice is known as microfinance. Clearly, capital and investment are an integral part of most businesses, since a good idea and luck alone are seldom enough without financing, investing and a sustainable cash flow.

Credit is a system whereby a person who can not pay gets another person who can not pay to guarantee that he can pay. (Charles Dickens). Illustration : Megan Jorgensen (Elena)

Should You Rent or Buy a House

Should You Rent or Buy a House

A formula for the biggest investment decision you’re likely to make

It’s often hard to remember the buying a home is an investment fraught with some of the risk of Wall Street. And much as you might wish to own a place of your own, you might feel a bit better about parting with your down payment if you were convinced that you were making a savvy investment. A quick rule of thumb: You can assume you’re probably better off renting if you do not itemize deductions on your tax returns or if you plan to move in a few years.

Gaylon Greer, professor of real estate at the University of Memphis, has devised a more sophisticated formula by adapting for potential homeowners a calculation used to decide whether to rent or buy. Keep in mind the Greer’s calculation only considers the financial aspects of the decision. Here’s how it works.

Consider the hypothetical predicament of Tracy and Jeff Summers, who are renting an apartment in Chicago for $1,200 a month. They are considering buying a similar-sized home for $200,000 and plan to live in the house for seven years.

Step 1: Figure out the yearly financial cost for each scenario. For renting, that would be the Summer’s annual rent of $14,400. For buying, it would be the after-tax costs of mortgage payments, property taxes, and maintenance.

Greer suggests estimating annual maintenance costs at about 1 percent of the house’s value for a new home and up to 3 or 4 percent for an older house. The local tax assessor can give you property tax rates.

New York, Chinatown, Mulberry street. Photo by Elena.

The Summers estimated spending about $2,000 a year on maintenance and paying $8,000 in property taxes. Their yearly mortgage payments come to approximately $16,000, assuming a $180,000 mortgage at 8,1 percent. However, the total yearly cost a buying is brought down substantially once you factor in the fact that property tax and mortgage payments are mostly tax-deductible. Since the Chicago couple falls into the 39,6 percent income tax bracket, they can roughly estimate that the government pays that percentage of their costs. Therefore their total yearly costs for buying would be $16,000.

Step 2: Figure how much you will recoup when you sell your house. You should expect about 8 to 10 percent of the final value to be consumed by transaction costs, such as brokerage and legal fees. After subtracting their transaction costs, the Summers estimate getting $290,000 for their house after living there for seven years. And they will still owe about $165,000 on their mortgage, so after taxes their net gain will be roughly $90,000.

Step 3: Estimate how much you might make if you had invested your money in something other than a home. You can use tables to give you the value today of a dollar available at various points in the future. These tables are based on a determined percent rate of return on high-grade corporate bonds. These numbers can change – if they do you can use a present value table found in any finance book.

Let’s see an example:

Year 1, cost or benefit $16,000, factor .9259, present value equivalent $14, 814,40.

Year 2, cost or benefit $16,000, factor .8573, present value equivalent $13, 716,80.

Each number corresponds to a year, so for year one, the factor will be .9259. Multiply that number by the annual cost of $16,000 to get a “present value equivalent” for the first year cost of ownership. Continue with similar calculations for each year you plan to live in the house. At the end you will add what you expect to recoup from selling the house and the down payment. You should end up with something like this (parenthesis indicate negative numbers):

Year 6 ($16,000) Factor .6502. Present value equivalent ($10,403,20).

Year 7 (cost) or benefit $90,000. Factor .5835. Present value equivalent $52,515,00.

You should be able to calculate the total, which include down payment to buy and net present value equivalent.

Step 4: Go through the same calculation for renting – minus the down payment and net gain for selling. The lower cost is the best financial option.

The bottom line for the Summers: They should buy the house. Figuring the present value of their money, they will come out ahead by over $20,000 if they purchase the home.

Of course, even if the result favors renting, you might decide to buy the house you saw because it has such a lovely view from the kitchen window. That’s simply a different definition of present value.

It’s Harder the First Time

With lower mortgage rates, first-time homebuyers can afford more expensive houses. The National Association of Realtors’ first-time home buyer index shows the ability of renters who are prime potential first-time buyers to qualify for a mortgage on a starter home. When the index equals 100, the typical first-time buyer can afford the typical starter home under existing financial conditions with a 10 percent down payment. The first-time buyer median income represents the typical income of a renter family with wage earners between the ages of 25 and 44 years. The 1994 first-time buyer index shows that the qualifying income needed for conventional financing covering 90 percent of a $93,000 starter home was $28,699. Yet the median income of prime-time first buyers was $24,998, a difference of $3,701. Even so, a typical first-time buyer could afford a home costing $78,300.

When to Trade In Your Mortgage

When to Trade in Your Mortgage

The right answer may be a lot sooner than you think. Here’s why:

The conventional wisdom is that interest rates have to drop to make refinancing attractive. The conventional wisdom may be wrong.

In fact, if you are planning to live in your house for many years, refinancing to a lower rate by as little as 1 percent may be profitable.

For a typical mortgage that involves refinancing costs of 1 percent of the total loan, accounting firms figure that, if you can lower your interest rate by a single percentage point, the new loan will put you ahead after just 18 months.

Refinancing can give you other opportunities, like switching from a 30-year fixed mortgage to 15 years. The switch usually will bump up your monthly payments, but it will also reduce the overall cost of your loan, and the interest rate you pay will generally be about a half percentage point lower than a 20-year mortgage. Another advantage: You build up more equity in your home that you can tap into later. Recent figures show that a third of the holders of 20-year mortgages choose 15-year loans when they refinance.

They may not necessarily be making the right choice, though. Consider the following example: if you get a $150,000, 30-year mortgage at 7.3 percent, you will pay $229,208 in interest over the life of the loan. A 15-year mortgage at 6.8 percent would cost less than half that – $89,612. The difference in monthly payments is $304 – $1,028 for the 30-year mortgage versus $1,332 for the 15-year mortgage.

Club marin of Montreal. Photo by Elena.

But suppose you opt for the 30-year loan and invest the $304 difference in the stock market, where it earns 7 percent after tax. (The historic return on stocks is about 10 percent before taxes). And suppose you also invest the extra tax savings generated by the longer-term loan.

Since the loan amortizes more slowly than a 15-year mortgage, more of your monthly payment is tax-deductible interest. After 10 years, the 30-year loan looks like a better and better deal. By the end of 15 years, the holder of the 30-year loan would have earn enough on his investment to pay off the remaining debt on the house and still have some $10,000 left.

Once you choose a mortgage, you`ll have to decide about refinancing costs. You`ll have the choice of covering them at the outset by paying points or spreading them over the life of the loan by accepting a somewhat higher interest rate. In most cases, you should opt for not paying points. By investing the money you would have paid in points, you can build up a tidy nest egg over the life of your mortgage, which should amount to more than you`d save if you paid the points and invested the amount you saved in lower interest costs on your loan.

The bottom line, everything considered, the best mortgage for you will be the one whose term most closely matches the time you expect to keep your house.

Your monthly payments (principal and interests) will be assuming different interest rates and loan terms.

Those Free Miles Are Flying Away

Those Free Miles Are Flying Away

Airlines are making it harder and harder to get freebees

Rembember the day when 20,000 frequent flyer miles bought you a free flight anywhere in the United States? No longer. In the past five years, veteran frequent flyer mile gatherers have watched their stashes slowly but surely devalue. Travelers who have been saving their miles for a rainy day are in danger of being washed out.

More than 200 billion of the trillion miles awarded since the inception of frequent flyer programs remain unredeemed. Airlines are making it harder for travelers to do so by raising the number of miles needed to claim a free trip, lowering the number of miles awarded on popular routes, imposing expiration dates on miles awarded, and limiting the seats available for coupon award tickets.

The savvy flyer can still beat the miles crunch, though. If you need an extra five thousand or ten thousand miles to get a coupon, you can get them without flying by using a credit card or long-distance telephone carrier aligned with a frequent flyer program. Travelers who need fewer miles can take advantage of the many hotels, car rental agencies, and airline frequent flyer clubs that have ongoing frequent flyer promotions. Hotels and car rental companies listed in airline frequent flyer newsletters often offer double mileage promotions, while airline clubs such as TWA Ambassador’s Club award 5.000 miles for a one-year membership.

Beyond these backdoor methods, travelers would do well to compare their frequent flyer programs with other major programs. Where there is a choice, it pays to sign up and fly with those programs that are the most lucrative.

Free Miles Flying Away. Photo by Elena.

Expert List: How frequent flyer programs stack up: Here’s how Randy Peterson, editor of Inside Flyer magazine, rates the airlines’ frequent flyer programs. Peterson has analyzed frequent flyer programs since their inception in the 1980s.

Program: NortherWorldPerks, American AAdvantage, USAIR Frequent Traveler, United Mileage Plus, America West Flight Fund, Alaska Mileage Plan, Continental OnePass, Delta Frequent Flyer, TWA Frequent Flight Bonus, Southwest Company Club. (Grade, Ease of Earning, Blacjout, Seat Availability, Customer Service, Hotel partners, Tie-ins.

Four Ways to Fly For Less

Couriers, rebaters, consolidators, and charters are cheap – but tricky

In 1959, when How to Travel without Being Rich was a hot seller, a 10-day trip from New York to Paris including air fare, lodging, and sightseeing cost $553. Today (in 1994), that price would elude even most serious of cost cutters. But bargains still abound for creative travelers willing to do a modicum of research.

Air Couriers

The absolute cheapest way to fly is a courier. Although most large courier companies such as Federal Express and UPS use their own couriers, smaller companies use “freelance couriers”. A typical courier fare can beat low as one-fourth of the regular airline economy class fare. Last-minute tickets are especially cheap – one courier company recently listed a fare from Los Angeles to Tokyo of $100. A full-fare ticket would cost around $1,800.

In exchange for a drastically reduced fare, couriers have minimal duties. It works like this: After booking a flight with a company, the courier meets a representative of the company at the airport two to four hours before departure. The agents hand baggage checks for the courier and other paperwork over to the courier then assures the arrival at his international destination. He accompanies the cargo through customs. Once through customs, the courier hands over the paperwork to the company agent. After that he is free to go.

Drawbacks: Because air courier companies use a courier’s allotted baggage space for cargo, couriers generally are limited to carry-on baggage only. More important, courier travel can be unreliable. On rare occasions, for instance, their shipments because of last-minute cargo changes. In this instance, if a courier does not have flexible travel plans and cannot wait for the next courier flight he or she may have to buy a full-fare economy ticket from a regular airline.

(Old News from 1994)

Collecting

What Collectors Cavet Most

The latest trends in collecting, from folk art to PEZ dispensers

Collecting is a social pursuit. Different people may collect different things beer cans, fine art, barbed wire, cars – but even the most solitary of stamps collectors likely derives pleasure from knowing that other collectors covet the same stamps he does. Trends in collecting covetry sometimes are based on investment value alone, the classic example being that when an artist dies, the value of his work will skyrocket because the supply has become finite. But trends often are generated by less obvious social forces. Black memorabilia, for instance, is becoming popular as America comes to grips with issues of racial identity. Below is survey of the trends in objects that America desires. It is also, not incidentally, a portrait of the nation.

Folk art: Prices for weather vanes, embroideries, and ships’ mastheads are commanding almost as much as Old Master paintings. At a Sotheby’s auction in early 1994, a Pilgrim period blanket chest sold for $354,500. For portraits, prices are based more on prettiness than on quality or rarity: cute children and young women might go for $100,000 but a dour old man brings less than $2,000.

Outsider art, primitive work done during any period by painters with little formal training, is specially sought after. But the field has seen a small post-recession slump – prices are down, so bargains are out there for the persistent.

Victorian decorative arts: Victorian items – particularly wicker and glass – have seen a resurgence of interest. Victorian furniture from the Aesthetic Revival of the 1870s is commanding top dollar. A single chair sold to a museum for $125,000.

Modern Collectibles: Anticipating Andy Warhol by half a decade, Campbell’s soup in 1905 produced a tin sign that showed a waving American flag made up of soup tins. In 1981, one went for $5,000; it was resold in 1992 for $93,500. Other popular collectibles include Hawaiian shirts, mechanical toys and Pez candy dispensers (first produced in 1952, and then going for up to $2,000). A caveat from Maine Antiques Digest about mass-produced toys, baseball cards, and other collectibles: “Usually, the first one comes out of the attic and it brings a big price. But there were more made – somebody else will see that and other will come out.”

Black memorabilia: Dealers are still getting used to hawking items with potentially negative connotations like ceramic mammies with ingratiating smiles and minstrel-figure mechanical banks that dance for pennies, but with an annual trade show, a magazine (Black Ethnic Collectibles), and an estimated 35,000 collectors in the U.S. alone, black memorabilia has taken off in the last few years.

Recently, some sheet music went for $88, a Dapper Dan mechanical toy brought $522, and African prince and princess dolls made in France sold for $115,000 and $112,000 each. Watch out, though: Increased popularity has inspired a run on reproductions.

Prints: John James Audubon painted all 435 species of birds known in the United States in the early 19th century. A complete set of prints of his paintings ran about $1,000 in the 1830s and has been appreciating ever since, probably since only five sets are now in existence. All birds aren’t equal: A turkey cock could fetch as much as $50,000 today, while $600 might get you a small songbird like the red-breasted nuthatch. Maps are hot, too. Particularly popular are 18th-century maps of America and historical prints especially Old West scenes.

50$ Furniture: High-style furniture by well-known designers like Charles Eames is hot because it’s less expensive. The pieces at a bargain because people are still living with them. Bargains can be found for several hundred dollars or even less.

Collecting memorabilia. Illustration by Megan Jorgensen (Elena)

Painting by the Numbers

A poll discovers what Americans like in their paintings

Animals frolic among the vibrantly hued trees and shrubs as festive folk in old-fashioned garb wander along the shore. Such a scene, according to a recent survey of 1,001 Americans, is the pinnacle of beauty in art. Russian émigré artist Alex Melamid, who conducted the survey with Vitaly Komar and support from the Nation Institute, was surprised by the consensus on what looks good in paintings.

The paint-by-consensus breakdown:

The style should be realistic, with visible brushstrokes, pale and vibrant colors, and thick textured surfaces.

The painting should be simple and relaxing to look at. Please leave out the black, gold, and turquoise as well as the bold designs and sharp models. And no nudes.

The favored size for a painting is that of a dishwasher or of a 19-inch TV set.

We like our scenes outdoors, our figures historical and our subjects secular.

When all is said and done, 57 percent would still rather take the money a painting is worth in cash than the art itself.

Notaries

Notaries

As anyone who has ever tried to decipher a license agreement or file a patent claim knows, legal documents can be quite hard to read – to the point of being confusing to those unfamiliar with the jargon or specific wording and language. In Quebec, a professional order, the Chambre des notaires du Québec regulates the notarial profession. For example, practicing professionals must send in reports to the chamber every month regarding last wills and inaptitude mandates, regardless of whether they have certified any.

Further, notaries possess in trust accounts, where funds from customers are collected, only to be used to complete transactions and pay fees, since it is the notary’s responsibility to make sure that there are no outstanding mortgages, loans and hypothecs (aside from new financing or refinancing) unpaid on the property.

Thus, to obtain final acquittances, the notary pays off any hypothecs to be radiated, as well as school and municipal taxes, and condo fees if there are any (required from all co-owners in a condominium). Once the transaction is complete, the adjustments at times result in moneys being prorated and given back to the party who otherwise would en up overpaying the bill(s). School commissions and the city refrain from issuing revised bills for novel homeowners. Also, the notary customarily produces a statement of Adjustments and Disbursements to show clients exactly how their funds were used and the proration calculation. Interestingly, in the digital era notaries publish online and supporting and related papers, as well as invoices, can be drafted using notarial software such as Pro-Cardex.

She decided to issue a formal denial through a public notary in the city, but by then it was too late. Nobody believed her. (Mario Gonzalez). First things, first! future notaries. Photo by Elena

Additionally, all notaries’ contracts have minutes. Thus, a mention on a contract stating ‘under minute number SIX THOUSAND TWO HUNDRED FIVE (6 205) of the original minutes of the undersigned Notary’ means this particular notary has processed six thousand two hundred five contracts. Moreover, a notary remains in possession of all contract originals, which even postmortem are transferred to the Court, while clients and partners receive certified copies. A true or certified copy of the original must contain the notary’s seal, an inversed title page, a stamp or notice with a descriptive statement and, of course, the notary’s signature. Amazingly, these steps transform a simple piece of paper into a document guaranteeing ownership rights to properties, financing agreements and resolutions.

In such tasks, the professional title holders are helped by paralegals and legal assistants. The correlated industry harbors its own job board, such as ParalegalJobs, and recruitment agencies such as Montpetit Group, while related programs are available at many colleges, whereas certain prelaw and graduate paralegal degrees are offered through universities.

Although notaries make decent salaries and many run their own businesses, notaries may actually lose money on certain files just to keep demand high. Of course, business practice varies from one notary to another. The best developmental avenues for notaries and notary firms seem to be solid networking and partnerships, particularly with banking institutions, mortgage and real estate brokers, and contractors.

Virtue of Merger

Virtue of Merger

Suppose we have two companies – the Able Circuit Smasher Company, an electronics firm, and Baker Typewriter Company, which makes typewriters. Each has 200,000 shares outstanding. It’s 1965 and both companies have earning of $1 million a year, or $5 per share.. Let’s assume neither business is growing and that, with or without merger activity, earnings would just continue along at the same level.

The two firms sell at different prices, however. Since Able Circuit Smasher Company is in the electronic business, the marker awards it a price-earnings multiple of 20, which, multiplied by its $5 earnings per share, gives it a market price of $100. Baker Typewriter Company, in a less glamorous business, has its earning multiplied at only 10 tomes and, consequently, its $5 per share earnings command a market price of only $50.

The management of Able Circuit would like to become a conglomerate. It offers to absorb Baker by swapping stock at the rate of two for three. The holders of Baker shares would get two shares of Able stock – which have a market value of $200 – for every three shares of Baker stock – with a total market value of $150. Clearly this is a tempting proposal, and the stockholders of Baker are likely to accept cheerfully. The merger is approved.

We have a budding conglomeratte, newly named Synergon, Inc. which now has 333,333 shares outstanding and total earnings of $2 million to put against them, or $6 per share (there are 200, 000 original shares of Able plus an extra 133,333, which printed up to exchange for Baker’s 200, 000 shares according to the terms of the merger. Thus, by 1966 when the merger has been completed, we find that earnings have risen by 20 percent, from $5 to $6, and this growth seems to justify Able’s former price-earnings multiple of 20.

Virtue of merger. Photo by Elena

Consequently, the shares of Synergon (née Able) rise from $100 to $120, everybody’s judgement is confirmed, and all go home rich and happy. In addition, the shareholders of Baker who were bought out need not pay any taxes on their profits until they sell their shares of the combined company.

A year later, Synergon finds Charlie Company, which earns $10 per share or $1 million with 100,000 shares outstanding. Charlie Company is in the relatively risky military-hardware business so its shares command a multiple of only 10 and sell at $100. Synergon offers to absorb Charlie Company on a share-for-share exchange basis. Charlie’s shareholders are delighted to exchange their $100 shares for the conglomerate’s $120 shares. By the end of 1967, the combined company has earnings of $3 million, shares outstanding of 433,333, and earnings per share of $6.92.

Here we have a case where the conglomerate has literally manufactured growth. Neither Able, Baker, nor Charlie was growing at all. Yet simply by virtue of the fact of their merger, the unwary investor who may finger his toock guide to see the past record of our coglomerate will find the following figures of earnings per share – $5.00 in 1965, $6.00 in 1966 and $6.92 in 1967.

Clearly, Synergon is a growth stock and its record of extraordinary performance appears to have earned it a high growth.

The trick that makes the game work is the ability of the electronic company to swap its high-multiple stock for the stock of another company with a lower multiple. The typewriter company can only “sell” its earnings at a multiple of 10. But when these earnings are packaged with the electronics company, the total earnings (including those from selling typewriter) could be sold at a multiple of 20. And the more acquisitions Synergon could make, the faster earnings per share would grow and thus the more attractive the stock would look to justify its high multiple.

The whole thing was like a chain letter – no one would get hurt as long as the growth of acquisition proceeded exponentially. Of course the process could not continue for long, but the possibilities were mind-boggling for those who got in at the start. It seems difficult to believe that Wall Street professionals could be so myopic as to fall for the conglomerate con game, but accept if they did for a period of several years. Or perhaps as subscribers to the castle-in-the-year theory, they only believed that other people would fall for it.

The story of Synergon describes the standard conglomerate earnings “grows” gambit. There were a lot of other monkey-shines practiced. Convertible bonds (or convertible preferred stocks) were often used as a substitute for shares in paying for acquisitions. A convertible bond is an IOU of the company, paying a fixed interest rate, that is convertible at the option of the holder into shares of the firm’s common stock. As long as the earnings of the newly acquired subsidiary were greater than the relatively low interest rate that was placed on the convertible bond, it was possible to show even more sharply rising earnings per share than those in the previous illustration. This is because no new common stocks at all had to be issued to consummate the merger, and thus the combined earnings could be divided by a smaller number of shares.

Sources: Burton G. Malkiel. A Random Walk Down Wall Street, including a life-cycle guide to personal investing. First edition, 1973, by W.W. Norton and company, Inc.