It is currently 28 Mar 2024, 16:31 |
Customized
for You
Track
Your Progress
Practice
Pays
FROM Kellogg MBA Blog: Compound interest and loan sharks |
First-year student Rohan Rajiv is blogging once a week about important lessons he is learning at Kellogg. Read more of his posts here. We recently discussed a segment on CBS regarding payday loans in our accounting class. CBS discussed a payday loan organization that charged a biweekly interest rate of 15%. They spoke about how outrageous this was. In their estimation, this meant the lender was charging customers an interest rate of 400%. But let’s look at the numbers. The first step is to spend a minute understanding compound interest. Every great personal finance book starts with requesting the reader appreciate the beauty and power of compound interest. So, here we go. Let’s imagine you have a principle amount of $10 growing at 10% compound interest per year. That means:
Let’s go back to the loan sharks now. The rate of interest is 15% and the time period is biweekly. There are 52 weeks in a year, so 26 “biweekly” time periods. CBS’ calculation was 15*26 = 390%, or around 400%. This equates to $400 of interest for every $100 in 1 year. However, they’ve forgotten that the 15% interest is compounded. That means the lenders also charge the 15% on the interest to be repaid over time. This means we have to think of it in terms of compound interest. The real rate, therefore is (1 + r)^n or (1+0.15)^26 (assuming principal to be 1) = 37.86 or 3,786%. If you’ve ever wondered how loan sharks make money, that is how. For every $100 loaned by a loan shark, they get around $3,786 back in a year for a 15% biweekly interest rate. One final note. Bankers have come under lots of criticism because of the financial crisis. While the industry definitely deserves the sort of scrutiny it has been getting, there was commentary about whether life was better without banks. I think this example illustrates how critical banks are toward progress in society. If we’re complaining about a 20% interest on our credit cards, well, maybe we ought to speak to a loan shark. Rohan Rajiv is a first-year student in Kellogg’s Full-Time Two-Year Program. Prior to Kellogg he worked at a-connect serving clients on consulting projects across 14 countries in Europe, Asia, Australia and South America. He blogs a learning every day, including his MBA Learnings series, on www.ALearningaDay.com. Filed under: Academics, Business Insight, Career, Student Life Tagged: 2Y, Accounting, compound interest, MBA Learnings, Two-Year MBA Program |
FROM Kellogg MBA Blog: How Kellogg applicants are assessed – Part 3 |
When Kellogg admissions officers review an application, they evaluate potential students based on six categories. Here, Beth Tidmarsh, director of admissions for Kellogg’s full-time MBA programs, demystifies what happens once you submit your materials and helps you think about how to formulate the story that will help the admissions team learn more about you. TODAY’S TOPIC: PROFESSIONAL GOALS PREVIOUS TOPICS: Intellectual ability, Work experience Ask any alum, and they will tell you that Kellogg was a pivotal point in his or her career. With your work experience, you’ve told us what’s led you to Kellogg. Outlining your professional goals will help us understand how a Kellogg MBA will bridge your past and future together. Since there many different candidates drawn to Kellogg, your reason for pursuing an MBA will be unique. Some applicants have a specific idea of how an MBA will help them grow within an industry they know already; others want to pursue a significant career pivot, while still others have more general long-term goals while remaining open to many paths that might take them there. The MBA program will expose you to a lot of great things to help you crystallize that path, but due to the nature of our programs, a lot starts happening very fast. (Have you heard about pre-term? We don’t waste a day getting you engaged.) Your time at Kellogg is going to fly by – and you are going to want to make the most of it by giving some serious thought for your reasons for pursuing an MBA. If you arrive without a clue what direction you’re headed, you’ll get overwhelmed pretty quickly. Knowing that our applicants have thought about the deeper reasons behind pursuing this degree — why they’re doing it, where they’re trying to go, how this education and their career fit together — helps students to hit the ground running once they arrive on campus. This is not to say that our students know everything about what they want or where they want to go on Day 1. Kellogg has many opportunities for you to explore and discover, but no student can tackle everything we offer. Our Admissions officers are checking to make sure you’ve got a plan in mind. We understand the plan may change over time, but do think about what areas and opportunities you would focus on if you were starting our program today. The most important factor in this case is honesty, both with yourself and within the application. Forget what you may think about what kinds of aspirations will impress an admissions officer: this is about your goals and your development. We want to see a clear narrative that explains why you want this MBA. No answer is wrong, so feel free to talk openly about how this program and community will help you achieve that goal. Read Beth Tidmarsh’s previous series on “Tips for applying to Kellogg” Beth Tidmarsh ’03 is the director of admissions for full-time MBA programs at the Kellogg School of Management at Northwestern University. As a vice president at Jones Lang LaSalle, she led and executed tenant representation and corporate solutions work for companies such as Xerox, KPMG and Huron Consulting Group. Prior to attending Kellogg, Beth spent six years in consulting for Accenture based out of Chicago and Sydney. Filed under: Admissions Tagged: 1Y, 2Y, admissions, admissions tips, application, applications, Beth Tidmarsh, full-time MBA programs, JDMBA, Kellogg experience, MMM, One-year, One-Year MBA Program, professional goals, prospective students, Two-Year, Two-Year MBA Program |
|
||
Hi Guest,
Here are updates for you:
ANNOUNCEMENTS
R2 Decisions Are Coming Out - Join Chatrooms!
Tuck at Dartmouth
|