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  1. MHB Apprentice

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    #1
    Hi, I'm currently stuck on two questions and don't quite understand how I would solve them. We're using BA II Plus calculators.

    The first question is

    You purchase a 32,500 dollar ring by making a 30% down payment and financing the rest with monthly payments, at the end of the month over 3 years at an interest rate of j2=8.2%. Calculate the size of the monthly payments and the cost of financing. So, I would need to calculate PMT.

    I wrote N=3*2=6, I/Y=8.2, P/Y=12, C/Y=2, PV=30% of 32500=9750, FV=32500.
    However when I calculate PMT, I don't get the correct answer. Not sure which part I'm getting wrong and how would I calculate the cost of financing?

    The second question is

    You lease equipment to other companies. You have an older crusher for metals available, and two offers to lease it from you. Offer A is to lease the machine for 8 years and pay 7,500 dollars per month, starting immediately. The second offer, Offer B. is to lease the machine for 3 years and pay 5,500 dollars per half-year, starting immediately.
    The second offer is for a heavier use project, and both offers will "use up" the crusher, and you expect the crusher will be worthless after either offer is over.

    In this case, you decide to evaluate offers by comparing the present value of the payments (at the beginning of the lease). Calculate the present value of the offers and choose the best one. Your accountants tell you to evaluate the payments using their standard rate of 22% effective. Find the present value for each option.

    For this question, I wrote:
    A) N=8*1=8, I/Y=22%, P/Y=12, C/Y=1, PMT=7500, FV=0, to find the PV. I did the same for B) with the numbers changed but still didn't get either answers correct. Again, not sure if I'm missing a step or if I have to do something beforehand.

  2. MHB Master
    MHB Math Helper

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    #2
    Quote Originally Posted by Aleckand9 View Post
    Hi, I'm currently stuck on two questions and don't quite understand how I would solve them. We're using BA II Plus calculators.

    The first question is

    You purchase a 32,500 dollar ring by making a 30% down payment and financing the rest with monthly payments, at the end of the month over 3 years at an interest rate of j2=8.2%. Calculate the size of the monthly payments and the cost of financing. So, I would need to calculate PMT.

    I wrote N=3*2=6, I/Y=8.2, P/Y=12, C/Y=2, PV=30% of 32500=9750, FV=32500.
    However when I calculate PMT, I don't get the correct answer. Not sure which part I'm getting wrong and how would I calculate the cost of financing?
    Surely if the payments are monthly over 3 years then N = 3*12 = 36.

    Also the PV is not 30% of 32 500, it's 70% of 32 500 = 22 750, and the FV is 0 because you want it paid off.

  3. MHB Apprentice

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    Quote Originally Posted by Prove It View Post
    Surely if the payments are monthly over 3 years then N = 3*12 = 36.

    Also the PV is not 30% of 32 500, it's 70% of 32 500 = 22 750, and the FV is 0 because you want it paid off.

    Ah, alright. Thanks, just another question but how would I determine when the problem is END or BGN? I'm a bit confused about this concept.

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