I am lost at this one help

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Niek89

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Sorry i am totally new on this page. i am not sure if i put it in the right category (if i did in the wrong please excuse me and tell me which i need to put it in).
I have a questions and i have the correct answer but i cant seem how they get the answer.

Hopefully anyone could solve this.

Several months ago you signed a contract to buy $4,175 worth of equipment for your business. You didnt have the money to pay the $4,175 so the seller agreed to finance it at an interest rate of 10% simple. Today, the first payment of $2,000 is due and 2 years from now a payment of $3,000 is due.

Questions A and B

  1. You cannot afford to make todays payment so you call the seller and arrange to pay the entire amount at the end of 2 years. Find the size of the payment.



  1. You won some money at the casino today so you decide to pay off both debts today. Find the size of the payment.

The answer is A:5400 B4500.
No matter how i calculate with the Present Value, FUture value and interest .. i cant seem to get to the answer.

Anyone here who can help me ?

Many thanks
Niek
 
Niek89 said:
Sorry i am totally new on this page. i am not sure if i put it in the right category (if i did in the wrong please excuse me and tell me which i need to put it in).
I have a questions and i have the correct answer but i cant seem how they get the answer.

Hopefully anyone could solve this.

Several months ago you signed a contract to buy $4,175 worth of equipment for your business. You didnt have the money to pay the $4,175 so the seller agreed to finance it at an interest rate of 10% simple. Today, the first payment of $2,000 is due and 2 years from now a payment of $3,000 is due.

Questions A and B

  1. You cannot afford to make todays payment so you call the seller and arrange to pay the entire amount at the end of 2 years. Find the size of the payment.



  1. You won some money at the casino today so you decide to pay off both debts today. Find the size of the payment.

The answer is A:5400 B4500.
No matter how i calculate with the Present Value, FUture value and interest .. i cant seem to get to the answer.

Anyone here who can help me ?

Many thanks
Niek
Click to expand...
Please some of your calculations - so that we can catch your "mistake" (if there is any) and and where to begin to help you.
 
Start by computing how many months ago was several months.
 
Niek89 said:
Sorry i am totally new on this page. i am not sure if i put it in the right category (if i did in the wrong please excuse me and tell me which i need to put it in).
I have a questions and i have the correct answer but i cant seem how they get the answer.

Hopefully anyone could solve this.

Several months ago you signed a contract to buy $4,175 worth of equipment for your business. You didnt have the money to pay the $4,175 so the seller agreed to finance it at an interest rate of 10% simple. Today, the first payment of $2,000 is due and 2 years from now a payment of $3,000 is due.

Questions A and B

  1. You cannot afford to make todays payment so you call the seller and arrange to pay the entire amount at the end of 2 years. Find the size of the payment.



  1. You won some money at the casino today so you decide to pay off both debts today. Find the size of the payment.

The answer is A:5400 B4500.
No matter how i calculate with the Present Value, FUture value and interest .. i cant seem to get to the answer. The question says the interest is SIMPLE. Make sure the formulae you are using do not relate to compound interest.

Anyone here who can help me ?

Many thanks
Niek
Click to expand...
See red
 
Niek89 said:
Several months ago you signed a contract to buy $4,175 worth of equipment for your business.
You didnt have the money to pay the $4,175 so the seller agreed to finance it at an interest rate of 10% simple.
Today, the first payment of $2,000 is due and 2 years from now a payment of $3,000 is due.

[1]You cannot afford to make todays payment so you call the seller and arrange to pay the entire amount at the end of 2 years. Find the size of the payment.

[2]You won some money at the casino today so you decide to pay off both debts today. Find the size of the payment.

The answers are [1]:5400 and [2]: 4500.

No matter how i calculate with the Present Value, FUture value and interest .. i cant seem to get to the answer.
Click to expand...
INTERESTing problem.
n = number of months ago
u = interest due at nth month
Code: 
MONTH  PAYMENT INTEREST  BALANCE
  0                      4175.00

  n   -2000.00    (u)    2175.00

n+24  -3000.00  435.00+u     .00
Interest being simple (assuming no compounding ay any time),
then interest earned during last 2 years = 2175 * .10 * 2 = 435.

Which means that amount u = 2000 + 3000 - 4175 - 435 = 390.

Again, I provided above assuming completely no compounding.
Hope it helps you finish this off!
 
Many thanks!

You guys helped me to put the focus on the right track! i finally figured it out.
i will do some more questions which are hard so far. but want to try it on my own. I see you guys reply so fast that helps a lot!
Instead of giving me the answer u point me to the right direction.

I do have another question about slightly a other topic but i will post that in a different thread.
 
This is how i got to a answer

QUestion B)
Add 2x 10%.
3000 already have full interest. PV= 2000 x 1+ (RentxTime) = 2000 x 1.20 = 2400 +3000 =5400

Question C)
FV= 3000 T= 2 year I=10 % PV= 3000 / 1.20 =2500

I seem to get to the right answer. So i guess i got it now
 
Many thanks!

I am not sure why it won't let me reply on my own post. But if this one succeed, just want to let you guys know: MANY THANKS. i got it solved for now.
 
Your problem re-worded:
Several months ago you borrowed $4,175 from your bank.
The bank agreed to finance it at an interest rate of 10% simple.
Today, the first payment of $2,000 is due.
2 years from now a payment of $3,000 is due.

A: You cannot afford to make today's payment.
So you arrange to pay the entire amount 2 years from now.
Find the size of the payment.

B: You decide to pay off the entire amount today.
Find the size of the payment.

The answers are A:5400 and B:4500.

Code: 
 DATE           INTEREST BALANCE
months ago               4175.00

today            375.00  4500.00 (B)

2 years later    900.00  5400.00 (A)
(B) Since 4500.00 is full payment today,
then evident that interest is 375.00.

(A) Since 5400.00 is full payment 2 years
from today, then evident that interest is 900.00

BUT this interest is calculated on 4500.00
(4500 * .10 * 2 = 900)
so interest is calculated on an amount that includes
interest of 375.00, which means compound interest.

So the interest is NOT fully simple.

The problem should specify something like:
today, the bank agrees to refinance the balance
owing INCLUDING interest.
 
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