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Old 09-15-2009, 12:05 PM   #41
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It is interesting that the composite rate is not just fixed + inflation.
I think it is a correct calculation of CPI-U into an inflation adjustment in the long run, since interest rates are normally shown on an annual basis, but the I bond rates are for 6 month. It makes for wild swings if there is 6 month significant inflation or deflation, it is doubled into the 6 months inflation rate adjustment.
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Old 09-15-2009, 12:05 PM   #42
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I thought I was doing well buying iBonds in August of 2000, but it never occurred to me to buy them on a cash back credit card! How cool is that?

Life certainly hands out surprises. A $100 iBond bought then is now worth $179 for a CAGR of 8.76%. I would have never dreamed that some iBonds would turn out to be my best investment 9 years later.
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That's cute
Old 09-17-2009, 12:16 PM   #43
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That's cute

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The singing sheep clip from Alan, or was it from Shaun, don't know what it has to do with I bonds, but cute anyway.
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It's a puzzle to me?
Old 09-17-2009, 12:33 PM   #44
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It's a puzzle to me?

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Originally Posted by IndependentlyPoor View Post
I thought I was doing well buying iBonds in August of 2000, but it never occurred to me to buy them on a cash back credit card! How cool is that?

Life certainly hands out surprises. A $100 iBond bought then is now worth $179 for a CAGR of 8.76%. I would have never dreamed that some iBonds would turn out to be my best investment 9 years later.
---------
If I bought a 3% fixed rate I bond with a credit card with 1% cash back, is it really like a 4% fixed rate for the life of the bond. or does the 1% just like a temporary benefit, for the first 6 months, or the first year?. When the treasury bond or corporate bond investors buy bonds at a discount, don't they just add their discount to the coupon rate to determine their return until maturity? If so, it seems as if I got more of a bargain than I thought.

I really don't know, but I wish they still allowed credit card on-line bond purchases.
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Old 09-17-2009, 01:16 PM   #45
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If I bought a 3% fixed rate I bond with a credit card with 1% cash back, is it really like a 4% fixed rate for the life of the bond. or does the 1% just like a temporary benefit, for the first 6 months, or the first year?.
Neither. In reality, you effectively paid $990 for a $1000 bond that yields a real $30 per year.

Your effective "real" rate of return is $30/$990, or 3.03% -- for the life of the bond -- plus a small one-time bonus of a little more than 1% when you redeem the bond (i.e. paid $990, receive $1000).
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Old 09-17-2009, 06:11 PM   #46
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The singing sheep clip from Alan, or was it from Shaun, don't know what it has to do with I bonds, but cute anyway.
Glad you liked it. It was Brewer who introduced the idea of the pet sheep buying bonds so I figured it must be Shaun - he's the sharpest sheep I know by far

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Probably had his pet sheep buy some.
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CAGR vs Yield
Old 09-19-2009, 08:47 PM   #47
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CAGR vs Yield

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[...]

Life certainly hands out surprises. A $100 iBond bought then is now worth $179 for a CAGR of 8.76%. I would have never dreamed that some iBonds would turn out to be my best investment 9 years later.
The treasury program Savings Bond Wizard in addition to the Rate column has a column "Yield" which for that Aug. 2000 $100 bond shows a yield of 6.56%, contrasted to CAGR you show as 8.76% for the same $79.68 gain.

I believe both Yield, I assume APY(Average Percentage Yield), and CAGR (Compound Annual Growth Rate) seem to be measures of interest rate required, when compounded, when given the gain over a time period. The results seem to be different. Can you explain? Is one better than the other?

I looked up both APY and CAGR on Wikipedia, which gave formulas and details, but no comparisons between them
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Old 09-19-2009, 10:39 PM   #48
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Can you explain?
Yeah, I can explain. I muffed the CAGR formula in my spreadsheet.
I thought 8% sounded kinda high. Shoulda looked more carefully. I left out a parenthesis. Odd that I ended up with something sorta close.

When I do it right, I get 6.65% CAGR, which I imagine is close enough 6.56% since I didn't do the calculation for the exact dates the interest was paid.

As far as I know, CAGR is just the equivalent interest rate it would take so that a savings account, compounded annually, would give the same return over the same amount of time. It is good for iBonds because their interest rate changes.

I don't know what formula the wizard uses, so I can't say anything about that. I have a Mac, so I can't use the wizard program.

Thank you for bringing it up. I would change it, but it has been quoted, so I can't.

I would say mea culpa, but I'm afraid to after reading the pet peeves thread.
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Close enough for government work
Old 09-20-2009, 02:12 AM   #49
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Close enough for government work

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[...]
As far as I know, CAGR is just the equivalent interest rate it would take so that a savings account, compounded annually, would give the same return over the same amount of time. It is good for iBonds because their interest rate changes.

I don't know what formula the wizard uses, so I can't say anything about that. I have a Mac, so I can't use the wizard program.
[...]
The yield I quoted was for 9 years and 1 month, when I changed and did 9 years, 08-2000 to 08-2009,the Wizard shows 6.62% yield, very close to your 6.65%, value $179.68. When I used 1.0662 and compounded $100 nine times with a simple calculator, it figures at $178.05 which is darned close to $179.68 that the Wizard shows, considering that a yield to 3 places has some rounding error.

Assuming that the Savings Bond Wizard uses APY for the yield column, I would say that, experimentally, APY and CAGR are the same thing.

Exact dates within the month are not needed since savings bonds purchased or sold anytime in the month, the treasury assumes occurred on the first of that month.
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