Just for clarification, what kind of interest? simple interest? compound interest?

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- Mar 13th 2008, 11:00 AM #1

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## Problem

A wants to pay 100000e cash for a house. And 42000 in the end of every year 10 years forward. B wants to pay 150000e cash and 59000 in the end of 5 years forward. Which is a better payment for the seller if we count with an yearly intrest of 5% ??

Can anyone show me how to calculate it?

The answer to a is:424300

Anyone could show to me how to get this answer???

- Mar 13th 2008, 12:48 PM #2

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- Mar 13th 2008, 02:06 PM #3

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A: Present Value at time 0 = 100,000 + 42,000 * [(1/1.05)+(1/1.05^2)+(1/1.05^3)+(1/1.05^4)+(1/1.05^5)+(1/1.05^6)+(1/1.05^7)+(1/1.05^8)+(1/1.05^9)+(1/1.05^10)] = 100,000 + 324,312.87 = 424,312.87 which is your answer

B: Present Value at time 0 = 150,000 + 59,000 * [(1/1.05)+(1/1.05^2)+(1/1.05^3)+(1/1.05^4)+(1/1.05^5)] = 150,000 + 255,439.12 = 405,439.10

Therefore, A is the bigger present value to the seller, A wins.

For those who don't like series, here is the annuity formula: Annuity Immediate Present Value

See, I wasn't blowing smoke on PM.