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# Dealing with the Joint Impact Dad Pays But doesn’t know how much - PowerPoint PPT Presentation

Dealing with the Joint Impact Dad Pays But doesn’t know how much. Ted Mitchell. The problem of how much. Should Dad pay Was solved for a improved partial performance when you got a higher interest rate

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### Dealing with the Joint ImpactDad Pays But doesn’t know how much

Ted Mitchell

• Was solved for a improved partial performance when you got a higher interest rate

• We measured the impact that the difference in the interest rate had on the difference in the interest payments

I∆R = min(A1,A2) x ∆R

I∆R = \$200 x 1% = \$2

Interest rate

I∆A = min(R1,R2) x ∆A

I∆A = 4% x -\$300 = -\$12

5%

∆R = 1%

4%

\$200

Account size

\$500

∆A = -\$300

Interest rate

5%

∆R = 1%

4%

\$200

Account size

\$500

∆A = -\$300

If Both Changes are in the direction!

• Same Direction (+ or –)

• Then the entire problem changes

• Your bank account increases (not decreases) from \$200 to \$500

• ∆A = + \$300

• Your interest rate increases by ∆r = 1%

• Your interest payment increases by ∆Z = (\$25 - \$8) = \$17

Interest rate direction!

5%

4%

Old Payment of 4% x \$200 = \$8

\$200

Account size

\$500

∆A = -\$300

The direction!new payment is 5% x \$500 = \$25

Interest rate

5%

∆R = 1%

4%

\$200

Account size

\$500

∆A = -\$300

The direction!new payment is 5% x \$500 = \$25

Interest rate

5%

∆R = 1%

4%

Old Payment of 4% x \$200 = \$8

\$200

Account size

\$500

∆A = -\$300

The total new payment is direction!

0.05 x \$500 = \$25

Interest rate

5%

Impact of ∆R =\$2

J =\$3

∆R = 1%

4%

Old Payment of \$8

Impact of the ∆A = \$12

\$200

Account size

\$500

∆A = -\$300

The \$3 is a direction!Joint impact

Now the \$3 is here it does exist!

Interest rate

5%

∆R = 1%

4%

\$200

Account size

\$500

∆A = -\$300

The \$3 is here as a joint impact! direction!

An Interaction term

A synergy term

Interest rate

5%

∆R = 1%

4%

\$200

Account size

\$500

∆A = -\$300

Interest rate

5%

Joint

∆R = 1%

4%

\$200

Account size

\$500

∆A = -\$300

The Total Impact Equation direction!

• ∆Z = I∆A + I∆R + J

• Change in the payment, ∆Z = (the Impact of the Difference in the size of the Account, I∆A) +

• (the Impact of the Difference in the Interest Rate, I∆R) +

• (the Joint Impact (if any), J, of the differences in the two factors.)

The total new payment is direction!\$25

Interest rate

5%

Impact of ∆R =\$2

J =\$3

∆R = 1%

4%

Payment of \$8

Impact of the ∆A = \$12

\$200

Account size

\$500

∆A = -\$300

How should the \$3 due direction!to joint impact

• Be allocatedThree possible solutions:

• 1) All to the difference in account size?

• 2) All to the difference in interest rate?

• 3) Split it in half

• 4) Split proportionately between the two factors?

• Accountants favor solutions #1 & #2

• Marketing Managers favor solution #4