Of all the Excel models, investing concepts, cash flow theories presented on Dividends4Life, none have been as misunderstood or caused more confusion than the money market account (MMA) rate. I have received many comments and emails inquiring about the rate. Most went something like "4.61%, are you out of your mind? Would you tell me where you found a MMA paying 4.61%?"Inherently, financial valuations are forward looking. Unfortunately, the only hard data we have is historic, interest rates included. Theoretically, the MMA rate that I use is intended to represent the MMA rate that will be earned over then next 20 years.
So how did I come up with the 4.61% that is currently being used? I use the 20-year U.S. Treasury rate to calibrate the MMA rate, which ironically was exactly 4.61% on August 1, 2008.
I don't really expect this will stop the questions and comments about my MMA Rate, but I now I have a post that I can point to to help explain what is happening.
(Photo: gerard79)
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