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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 Impact Dad Pays But doesn’t know how much

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Dealing with the joint impact dad pays but doesn t know how much
Dealing with the Joint ImpactDad Pays But doesn’t know how much

Ted Mitchell


The problem of how much
The problem of how much

  • Should Dad pay

  • 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


Dealing with the joint impact dad pays but doesn t know how much

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


Dealing with the joint impact dad pays but doesn t know how much

What happens when both the things change in the same direction!

Interest rate

5%

∆R = 1%

4%

$200

Account size

$500

∆A = -$300


If both changes are in the
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


Dealing with the joint impact dad pays but doesn t know how much

Interest rate direction!

5%

4%

Old Payment of 4% x $200 = $8

$200

Account size

$500

∆A = -$300


Dealing with the joint impact dad pays but doesn t know how much

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

Interest rate

5%

∆R = 1%

4%

$200

Account size

$500

∆A = -$300


Dealing with the joint impact dad pays but doesn t know how much

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



Dealing with the joint impact dad pays but doesn t know how much

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 j oint impact
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


Dealing with the joint impact dad pays but doesn t know how much

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


Dealing with the joint impact dad pays but doesn t know how much

It is the result of both changes together! direction!

Interest rate

5%

Joint

∆R = 1%

4%

$200

Account size

$500

∆A = -$300


The total impact equation
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.)


Dealing with the joint impact dad pays but doesn t know how much

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 to joint impact
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


Dealing with the joint impact dad pays but doesn t know how much


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