SOLUTION: A store sells a washing machine.Mark offers to give a down payment of 5,000 pesos and pay 6000 pesos at the end of every 6 months for two years.Assuming that the money compounds by

Question 1188273: A store sells a washing machine.Mark offers to give a down payment of 5,000 pesos and pay 6000 pesos at the end of every 6 months for two years.Assuming that the money compounds by 3% monthly.What is the economic value of the washing machine?
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
there are two ways to interpret what you just said.

the money compounds 3% monthly could mean that the interest rate is 3% per month.

it could also means that the interest rate id 3% per year compounded monthly.

both options appear to be extreme.

3% per month equates to 36% per year.

that's a high annual percent cost.

3% per year equates to .25% per month.

that's a low monthly percent cost.

i'll do it both ways and you can decide which makes more sense for you.

the calculator at https://arachnoid.com/finance/index.html was used for my analysis.

here's the first way.

the interest rate for each 6 month period is calculated as follows:

.36 / 12 = .03 per month.
1.03 ^ 6 - 1 = .1940522965 for each 6 month period.
multiply that by 100 to get 19.40522965% for each 6 month period.

here's the second way.

the interest rate for each 6 month period is calculated as follows:

.03 / 12 = .0025 per month.
1.0025^6 - 1 = .0150940632 for each 6 month period.
multiply that by 100 to get 1.50940632% for each 6 month period.

here's an excel spreadsheet printout of the 6 month by 6 month remaining balance.

the first way assumes 36% / 12 = 3% per month.

the second way assumes 3% per year / 12 = .25% per month.

there were 4 six month time periods in both cases.

if it's done the first way, then the economic value of the washing machine would be 5000 + 15709.15 = 20709.15 pesos.

if it's done the second way, then the economic value of the washing machine would be 5000 + 23120.99 = 28120.99 pesos.

let me know if you have any questions regarding this.

theo

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