Posted by Julia H. on Sunday, September 18, 2011 at 10:34pm.
for amount owing after 12 months.
amount of first 12 payments at end of first year
= 804.45( 1.0075^12 - 1)/.0075 = 10 061.73
Value of debt after 12 months without payments
= 50000(1.0075)^12 = 54 690.34
Balance owing 12 months from now
= 54690.34 - 10061.73 = 44628.61
Your method makes perfect sense.
You are placing yourself at the 12 month mark on the timeline, with 74 payments still to be made.
So the balance at year 1 must be the PV of the remaining 72 payments.
The second part is also correct.
In my method, I stay at the present (now) on the timeline, showing that there are many ways to do this question.
To do the steps for
804.45 * { [1 - (1.0075)^-12] / .0075} = 9,198.82 on the calculator, I often start with the difficult parts of the calculation.
here would be my sequence:
1
-
1.0075^12±
=
÷
.0075
=
x
804.45
=
I got 9198.82 just like you did
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