Annuity

• Jul 7th 2010, 01:55 PM
petedam
Annuity
when it says "the first payment is made at the date of signing" what type of annuity is it?

By the way this is the question

Mary purchases a home entertainment centre from Krazy-Krazy Appliance store. She paid \$500 down and agreed to pay \$94.37 per month for three (3) years. The first payment is made at the date of signing and interest is 22½% compounded monthly.

1. What is the purchase price?

2. How much is the cost of financing?

1.

BGN
-94.37 PMT
1.875 i
36 n
0 FV
COMP
PV
2,500.40

2.

94.37 x 36 = 3,397.32 - (2500.40 +500) = 396.92

Does that look right?
• Jul 8th 2010, 05:04 AM
Wilmer
Not quite.

Purchase price = 3000.40 : 2500.40 borrowed + 500.00

Interest = 896.92 : 94.37 * 36 - 2500.40
• Jul 8th 2010, 05:38 AM
petedam
I had it right at first. :)

when it says that the first payment is made at the time of signing....it means the same as the payment is made at the beginning of the month right?

Thanks,
• Jul 8th 2010, 09:26 AM
Wilmer
Quote:

Originally Posted by petedam
when it says that the first payment is made at the time of signing....it means the same as the payment is made at the beginning of the month right?

Yes.
BUT there's basically NO difference between end and start of month: "calculation" is SAME,
except the term is reduced by 1 month.

With your example, the loan is "really" 2500.40 - 94.37 = 2406.03 requiring 35 payments;
in other words, same as a down payment of 500.00 + 94.37 = 594.37
• Jul 8th 2010, 09:40 AM
petedam
Quote:

Originally Posted by Wilmer
Yes.
BUT there's basically NO difference between end and start of month: "calculation" is SAME,
except the term is reduced by 1 month.

With your example, the loan is "really" 2500.40 - 94.37 = 2406.03 requiring 35 payments;
in other words, same as a down payment of 500.00 + 94.37 = 594.37

Now i am a litle confuse...in my example, is the purchase price 2500.40 or 2406.03? ( did i calculate the purchase price correctly)

According to my calculation if the payment is made @the beginning of the month the purchase price should be 2500.40+500=3000.4
But if the payment is made at the end of the month the purchase rice should be....2454.38 + 500 =2954.38
• Jul 8th 2010, 10:42 AM
Wilmer
Forget it...you're ok...

All I was trying to say (as example) is if you borrow \$1000 and make \$50 payment at same time,
then that's the same as borrowing \$950 and making NO payment at same time...

If that confuses you, just forget it for now.
• Jul 11th 2010, 01:50 AM
petedam
Quote:

Originally Posted by Wilmer
Not quite.

Purchase price = 3000.40 : 2500.40 borrowed + 500.00

Interest = 896.92 : 94.37 * 36 - 2500.40

If the total purchase price is 3000.40 and you had to pay (94.37 x 36= 3,397.32) Shouldn't the cost of financing be 3,397.32 - 3000.40 = 396.92 not Interest = 896.92 : 94.37 * 36 - 2500.40
• Jul 11th 2010, 03:44 AM
Wilmer
Quote:

Originally Posted by petedam
If the total purchase price is 3000.40 and you had to pay (94.37 x 36= 3,397.32) Shouldn't the cost of financing be 3,397.32 - 3000.40 = 396.92 not Interest = 896.92 : 94.37 * 36 - 2500.40

You paid 94.37 * 36 + 500: 3397.32 + 500 - 3000.40 = 896.92 : use your head, Pete.
• Jul 11th 2010, 07:37 AM
petedam
Quote:

Originally Posted by Wilmer
You paid 94.37 * 36 + 500: 3397.32 + 500 - 3000.40 = 896.92 : use your head, Pete.

i am trying to use my head...just a little confused. I guess it helps if i leased something before but can't say that I have. Anyways without looking at the numbers.....I understand that the down payment is part of the purchase price but should not be used to try to figure out the cost of financing because it was not borrowed!
• Jul 11th 2010, 07:59 AM
Wilmer
Ya got it, Big Pete!!
• Jul 11th 2010, 09:18 AM
petedam
Quote:

Originally Posted by Wilmer
Ya got it, Big Pete!!

i am trying to learn but you are making me feel dumb.(Sadsmile)
• Jul 11th 2010, 09:56 AM
Wilmer
How's that? QUIT assuming I'm mean...I only want you to LEARN: kapish?
• Jul 11th 2010, 10:06 AM
petedam
Quote:

Originally Posted by Wilmer
How's that? QUIT assuming I'm mean...I only want you to LEARN: kapish?

k thanks alot for all your help. :)