Turn on thread page Beta
    • Thread Starter
    Offline

    13
    ReputationRep:
    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!
    Offline

    2
    ReputationRep:
    (Original post by BJP)

    But I can't seem to obtain the right answer

    Any help would be great, thanks a lot!
    What's the answer? 3.973 years?
    • Thread Starter
    Offline

    13
    ReputationRep:
    (Original post by Mustard-man)
    What's the answer? 3.973 years?
    I think the answer was 4 years, so yeah, near enough. How did you do that? Thanks in advance
    Offline

    2
    ReputationRep:
    (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.
    Offline

    0
    ReputationRep:
    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.
 
 
 
Reply
Submit reply
Turn on thread page Beta
Updated: February 6, 2010
Poll
Favourite type of bread

The Student Room, Get Revising and Marked by Teachers are trading names of The Student Room Group Ltd.

Register Number: 04666380 (England and Wales), VAT No. 806 8067 22 Registered Office: International House, Queens Road, Brighton, BN1 3XE

Write a reply...
Reply
Hide
Reputation gems: You get these gems as you gain rep from other members for making good contributions and giving helpful advice.