Why This MattersRead the earlier reference in its original context, with its historical statements and limits preserved.
Inspect debt balances, real returns, and leverage under explicit rate and payment conventions. Separate changes in asset value from the cash required to maintain a position.
2 Min Read · Archived Foundation Specification
Preserved Foundation Text / v0.2This archived section describes an earlier release. Its historical statements about deployment and unbuilt tools refer to that edition.
M05 · D(t+1) = max[0, D(t) * (1 + i(t)) + f(t) - p(t)]One-debt schedule: opening balance, monthly contractual rate, financed fee and end-of-month payment. The actual payment is capped at the amount due. The included function also reports unused payment. Daily interest, penalties, new draws and minimum-payment rules are outside this simplified schedule.
For example, a $1,000 balance at a 1% monthly rate, followed by a $100 payment and no fee, ends at $910. Paying less than interest can grow the balance. A monthly rate is not an annual rate: APR/12 is appropriate only when it matches the disclosed contract convention.
For multiple debts, compare explicit feasible schedules using the same total payment budget and dates. Highest-rate-first has an interest-cost rationale under suitable fixed terms; smallest-balance-first changes the sequence and may suit a person’s execution preferences. Neither should override essential obligations or unmodeled legal consequences. [S05]
M06 · r(real) = [1 + r(net nominal)] / [1 + inflation] - 1Same-period return rates. The nominal input must already reflect the stated fee and tax assumptions. Do not subtract inflation from a rate in another period. This conversion is not a return forecast.
M07 · Equity after decline = V * (1 - d) - debtHolding debt fixed for the illustration, a $100,000 asset financed with $60,000 debt begins with $40,000 equity. A 20% asset decline leaves $20,000 equity: a 50% decline in equity before interest, costs and amortization.
Different loan terms create different downside paths. Securities margin can involve forced sales and losses beyond the initial contribution. Do not assume that a property loan has the same mechanics, or that a positive base case protects against lender action. [S04]