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Math Help - PV

  1. #1
    Junior Member
    Joined
    Jun 2010
    Posts
    52

    PV

    I am not sure if I titled this one correctly but here it is....


    Fred purchased a farm with a down payment of $8,500 and forty-eight (48) semi-annual payments of $3,000. The first of these payments is to be made two (2) years after the date of purchase. What was the purchase price of the farm if the interest rate charged on the balance is 14% compounded semi-annually?


    n 48
    i 7
    PMT 3,000 0
    FV 0
    PV ? = 41,191.42

    n 3
    i 7
    FV 41,191.42
    PV 33,624.47 + 8,500 = 42,124.47

    I know this is the right answer but I am struggling to understand why the second N is 3 instead of 4? It has been explained but I am having a hard time grasping it.

    Thanks in advance.
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  2. #2
    Junior Member
    Joined
    Jun 2009
    Posts
    49
    By using the formula for the PV of an ordinary annuity, you determined the PV of the 3k annuity as of a point that's six months prior to the first 3,000 payment. So then to bring it back to today, you had to discount that PV back another 3 six-month periods.
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