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Thread: Compound interest present value help.

  1. #1
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    Compound interest present value help.

    "Annette is considering two offers on her house in Rutland. The first offer is $401937.40 which includes 10% down, 45% to be paid in 1 year and the remainder to be paid in 2.5 years. The second offer is for $375362.86 with 50% down and the remainder to be repaid in 1 year. The rate of interest is 4.77% per year compounded monthly.

    What is the value today of Annette's first offer?"




    I've been struggling with this one. Don't know if I should be deducting the down payment from principle and how I should be applying my future value and present value formulas. I know I divide the 4.77% interest by 12 to find my periodic interest and then use it in my formulas but for some reason I'm coming up wrong every time.

    Help? Thank you so much.
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  2. #2
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    Re: Compound interest present value help.

    Quote Originally Posted by iguaranteeit View Post
    "Annette is considering two offers on her house in Rutland. The first offer is $401937.40 which includes 10% down, 45% to be paid in 1 year and the remainder to be paid in 2.5 years. The second offer is for $375362.86 with 50% down and the remainder to be repaid in 1 year. The rate of interest is 4.77% per year compounded monthly.

    What is the value today of Annette's first offer?"




    I've been struggling with this one. Don't know if I should be deducting the down payment from principle and how I should be applying my future value and present value formulas. I know I divide the 4.77% interest by 12 to find my periodic interest and then use it in my formulas but for some reason I'm coming up wrong every time.

    Help? Thank you so much.
    Can't read your post
    Last edited by Debsta; Mar 1st 2019 at 07:55 PM.
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  3. #3
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    Re: Compound interest present value help.

    Quote Originally Posted by iguaranteeit View Post
    Annette is considering two offers on her house in Rutland.

    The first offer is 401937.40 which includes 10% down, 45% to be paid in 1 year
    and the remainder to be paid in 2.5 years.

    The second offer is for 375362.86 with 50% down and the remainder to be repaid in 1 year.

    The rate of interest is 4.77% per year compounded monthly.

    What is the value today of Annette's first offer?"

    I've been struggling with this one. Don't know if I should be deducting the down payment
    from principle and how I should be applying my future value and present value formulas.
    I know I divide the 4.77% interest by 12 to find my periodic interest and then use it in my
    formulas but for some reason I'm coming up wrong every time.
    This is what you posted; the dollar sign removed!

    Any reason for including the 2nd offer?

    Can you post (no dollar signs!!) one of your attempts?

    Is the solution given? If so, please include it.
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  4. #4
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    Ottawa Ontario
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    Re: Compound interest present value help.

    In "bank statement" format, these are the transactions:
    Code:
    MONTH   PAYMENT  INTEREST   BALANCE
      0                        401937.40 [1]
      0   -40193.74            361743.66 [2]
     12  -180871.83  17637.46  198509.29 [3]
     30              14693.56  213202.85 [4]
    [1]: selling price
    [2]: after 10% downpayment
    [3]: after payment (45% of 401937.40 = 180871.83) and interest to that date.
    [4]: after interest for the last 18 months: 198509.29 * (1 + .0477/12)^18 = 213,202.85)

    The present value is: 213202.85 / (1 + .0477/12)^30 = 189280.58

    Above is correct ONLY IF I understood the problem properly....
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