SOLUTION: allan bought a household appliance with payments of 3500 every end of quarters for 2 years and 6 months.
he made a down payment of 6000 to start with.
if money is worth
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-> SOLUTION: allan bought a household appliance with payments of 3500 every end of quarters for 2 years and 6 months.
he made a down payment of 6000 to start with.
if money is worth
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Question 1105019: allan bought a household appliance with payments of 3500 every end of quarters for 2 years and 6 months.
he made a down payment of 6000 to start with.
if money is worth 8% compounded quarterly, find the equivalent cash price of the appliance Answer by Theo(13342) (Show Source):
You can put this solution on YOUR website! if i understand this correctly, he put 6000 down and then made payments of 3500 at the end of each quarter for 2 and 1/2 years.
the annual interest rate is 8% / 100 = .08 per year.
the quarterly interest rate is .08 / 4 = .02 per quarter.
to find the equivalent cash price of the appliance, you have to find the present value of the payments at 2% per quarter.
time point 0 is when he made the purchase
time point 0 is the beginning of the first quarter.
time point 1 is the end of the first quarter.
time point 2 is the end of the second quarter.
etc.
you have 10 quarters.
at time point 0, you shell out 6000.
at time points 1 through 10, you shell out 3500.
the present value of these cash flows is the equivalent cash price of the appliance.
the following excel spreadsheet shows the individual calculations.
the sum of the present value of the cash flow at an interest rate of .02 perquarter is the equivalent cash price of the appliance.
