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Math Help - Annuity

  1. #1
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    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 22% 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?
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  2. #2
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    Not quite.

    Purchase price = 3000.40 : 2500.40 borrowed + 500.00

    Interest = 896.92 : 94.37 * 36 - 2500.40
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  3. #3
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    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,
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  4. #4
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    Quote Originally Posted by petedam View Post
    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
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  5. #5
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    Quote Originally Posted by Wilmer View Post
    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
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  6. #6
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    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.
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  7. #7
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    Quote Originally Posted by Wilmer View Post
    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
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  8. #8
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    Quote Originally Posted by petedam View Post
    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.
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  9. #9
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    Quote Originally Posted by Wilmer View Post
    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!
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  10. #10
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    Ya got it, Big Pete!!
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  11. #11
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    Quote Originally Posted by Wilmer View Post
    Ya got it, Big Pete!!
    i am trying to learn but you are making me feel dumb.
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  12. #12
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    How's that? QUIT assuming I'm mean...I only want you to LEARN: kapish?
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  13. #13
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    Quote Originally Posted by Wilmer View Post
    How's that? QUIT assuming I'm mean...I only want you to LEARN: kapish?
    k thanks alot for all your help.
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