# Finance: The Time Value Of Money ProblemWatch

#1
Question: Around Town Movers recently purchased a new truck costing £97,000. The firm financed this purchase at 8.25 percent interest with monthly payments of £2,379.45. How many years will it take the firm to pay off this debt?

I'm not sure how to answer this question. I tried to plug it into the annuity formuma:

97000=(2379.45/36)*(1/(0.0825/12)*(1-(1/(1+/(0.0825/12)^n)))

But I can't seem to obtain the right answer

Any help would be great, thanks a lot!
0
8 years ago
#2
(Original post by BJP)

But I can't seem to obtain the right answer

Any help would be great, thanks a lot!
0
#3
(Original post by Mustard-man)
I think the answer was 4 years, so yeah, near enough. How did you do that? Thanks in advance
0
8 years ago
#4
(Original post by BJP)
I think the answer was 4 years, so yeah, near enough. How did you do that? Thanks in advance
97,000 = 12(2379.45)a^(12)(angle t)

The annuity factor is payable monthly, so you'll have you work out i^(12) using i^(p) = p[(1+i)^(1/p) - 1].

Solve for t through some rearranging and logging.
0
8 years ago
#5
Here's how to solve your problem using a financial calculator BAII plus:

PV = Present Value
FV = Future Value
N = Number of periods, what we have called “t” in our future value equation
i = Interest rate, which we have called “r” in our future value equation.
PMT = Payments per period
BGN = Beginning of Period Calculations
C/Y = Compounding of interest per period
P/Y = Number of periods per year
Source: How to use a Financial Calculator to solve time value of money

PV = 97,000
FV = 0
N = ???
i = 8.25
PMT = \$2379.45
C/Y = 12
P/Y = 12

Solve for N = ? 36 (months) which is almost about 3 years

Disclaimer: Financial calculators have the competitive advantage of handling lots of computations but that is pretty much all they can do. In other words, you as the financial/business analyst must understand the problem at hand and be able to program the financial calculator to achieve your desired answer.
0
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