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QUICKIE FV or PV? FUTURE OR PRESENT

  1. Mar 15, 2005 #1
    HI I need to make a line diagram for this question and dont know what formula to use future or present can someone tell me plz

    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.
     
  2. jcsd
  3. Mar 15, 2005 #2

    shmoe

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    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.
     
  4. Mar 15, 2005 #3
    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 thats why in the time line I have simply labeled the monthly period R is this ok?
     
  5. Mar 15, 2005 #4

    shmoe

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    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 theres alot more than 5 of them!
     
  6. Mar 15, 2005 #5
    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?
     
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