QUICKIE FV or PV? FUTURE OR PRESENT

[aisha]

HI I need to make a line diagram for this question and don't know what formula to use future or present can someone tell me please

Mike wants to buy a snowmobile. His parents decide to lend $9000 at 10%/a compounded monthly, if he agrees to repay the amount by making equal monthly (at the end of the month) payments for 5 years.

 

[shmoe]

Mike's getting the $9000 today, so put that value at time zero. Then put his monthly payments on and adjust all the money to the same convenient time, present value will be the most convenient.

 

[aisha]

I was thinking something like this

NOW___________R_________R__________R__________R___________R
..l.....1.....2....3...4....5
R(1+(.10/12))^-1
R(1+(.10/12))^-2...
R(1+(.10/12))^-3.......
R(1+(.10/12))^-4..........
R(1+(.10/12))^-5.............


Where the number 1-5= years
R=payment

Now and year One are together I am not writing $9000 for now because the time line is supposed to show the payment and the time and the value of each payment at each time. CORRECT ME IF IM WRONG? am I on the right track? I just wanted to know whether these formulas in this time line are FV or PV. In the next question I have to find the monthly payment that's why in the time line I have simply labeled the monthly period R is this ok?

 

[shmoe]

Now and year One are together I am not writing $9000 for now because the time line is supposed to show the payment and the time and the value of each payment at each time.

You can put the $9000 on the same line. It's fine if you have (money in) and (money out) on the same line.

I'm concerned that your line only went to 5 periods. Too much of a coincidence to stop there when it's 5 years. Remember the payments are monthly, so there's a lot more than 5 of them!

 

[aisha]

NOW->$9000____R___R___R___R___ _ _ _ _____R______R_
..l...Months->.1...2...3...4... . . . ...48...60
R(1+(.10/12))^-1
R(1+(.10/12))^-2...
R(1+(.10/12))^-3.....
R(1+(.10/12))^-4.....
R(1+(.10/12))^-48....... ...
R(1+(.10/12))^-60....... ......

R=payment


Well what do u think now?? U LIKE? BETTER?