Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, January 24, 1994 TAG: 9401220073
SECTION: MONEY PAGE: A-10 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Long
A: If you mean interest paid by credit unions on deposits, credit unions will not be covered by the federal Truth in Savings Act until 1995, which standardizes quotations of interest in terms of average annual yield. Meanwhile, credit unions have great leeway in how they calculate the interest. Many still pay interest only on the lowest balance during a calendar quarter. Some credit unions may choose to come under the provisions of the act in 1994.
If you mean interest paid by you on a credit union loan, most of them charge simple interest on the declining balance, like a home mortgage.
If you have a specific question, you should ask the administrators of the credit union where you are a member.
Look at alternative investments
Q: In April, I bought $100,000 in tax-free mutual funds. For five years, it has an end-load fee if I sell.
I read recently prices have fallen for mutual funds that invest in long-term bonds.
Should I get out of these tax-free mutual funds and lose perhaps 4 percent of the $100,000 - which I could do - and invest in certificates of deposit even at a low rate but are insured up to $100,000?
A: Bond funds, like bonds, vary in value opposite to the direction of interest rates. When interest rates go up (or are expected to go up) the value of bonds declines. Long-term bond funds are especially volatile.
A lot depends on who you are. You should be in at least the 28 percent federal income tax bracket to profit from tax-free funds. Your age and your tolerance for risk also are at issue.
Remember that a CD investment has risk, too - the risk of falling behind the rate of inflation so that your income erodes.
As a general proposition, mutual funds are a long-term investment that should be held for five years if possible. And a penalty of $2,500 is very steep.
On the other hand, with $100,000, you should diversify. You want some of your portfolio to perform well in every type of market. You should have some money in stock funds as an inflation hedge, and in cash as well as in bonds.
You also want to compare the rate of return you are receiving in your fund compared to what you could earn elsewhere.
You do not have to act all at once. You can leave most of your money where it is, but start to move some of it into alternative investments.
Your main consideration is to do what lets you sleep at night.
Child support payments not deductible
Q: If a father is divorced and pays child support, can he count the child support for tax purposes? The ex-wife is on disability and doesn't work.
A: C.J. King, a certified public accountant with the Roanoke firm of Cole & King, said this is governed by a strict rule.
The rule says that alimony is deductible by the paying spouse and is included in the income of the spouse who receives it.
Child support payments, on the other hand, are not deductible by the payer and are not included in the income of the spouse.
The legislative reasoning behind this treatment, King said, is that alimony is considered a division of the higher-earning spouse's future income. This future income is divided by divorce agreement or court decree under the notion that both husband and wife play a role in developing or cultivating the earning power.
By contrast, child support is simply your portion of taking care of the child and has no tax benefit or consequences.
King said a difficult aspect of divorce is determining, at the time of separation, if payments are to be alimony or child support. As a general rule, he said, payments to a former spouse are alimony unless the divorce agreement or court decree specifically designates the payments as child support.
All payments should have been clearly identified when the divorce was finalized. If you have questions concerning the nature of a payment, King said, the lawyer who handled your divorce should be able to help you.
Bids are analysts' estimates
Q: I question the proposed buyout of Paramount Communications by either Viacom or QVC.
Viacom's latest offer, as of this writing, for each share of Paramount is $105 per share or 0.20408 shares of Class A stock plus 1.08317 shares of Class B stock plus 0.20408 shares of new issue preferred.
QVC's last offer for each share of Paramount is $92 cash per share or 1.43 shares of QVC common stock plus 0.32 cumulative nonconvertible new issue preferred plus 0.32 warrants to purchase QVC stock.
The analysts say the Viacom offer is worth about $79.23 per share of Paramount while the QVC offer is worth about $82 per share.
Since the warranties and preferred are new issues, how do the analysts arrive at these figures?
A: Tyler Pugh, vice president at the Roanoke office of Wheat First Securities, said the companies would pay cash for 50.1 percent of the outstanding stock in order to gain control of Paramount. Securities would be issued for the other 49.9 percent of outstanding stock.
He said the figures are merely estimates of the trading values of the other securities based on analysts' studies of the companies.
The values could change in the marketplace just like the values of the stocks. And, as the bidding war for Paramount continues, so could each company's bid.
Mag Poff will help find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke 24010. Or leave a recorded message by calling (703) 981-3434 and when asked for a mailbox number, press 66639 (MONEY), followed by the # symbol.
by CNB