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Math Help - Problem

  1. #1
    Junior Member
    Joined
    Mar 2008
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    51

    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???
    Last edited by Rambo; March 13th 2008 at 12:19 PM.
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  2. #2
    Member
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    Mar 2008
    From
    Acolman, Mexico
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    118
    Just for clarification, what kind of interest? simple interest? compound interest?
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  3. #3
    Senior Member
    Joined
    Feb 2008
    From
    Berkeley, Illinois
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    364
    Quote Originally Posted by Rambo View Post
    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???
    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.
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