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View Full Version : ASM pg 286 #43

Hobogov
April 11th 2008, 02:18 PM
A loan of 1000 at a nominal rate of 12% convertible monthly is to be repaid by six monthly payments with the first payment due at the end of month 1. The first three payments are x, and the last three are 3x. Determine the principal in the 3rd payment, and the interest in the 5th.

I understand the books solution in obtaining the principal. But when I used the P3 formula = 86.92 * (v ^ n - t +1) = 86.92 * (v ^ 6-3+1) = 86.92 *(1/1.01) ^4 does not produce the correct answer. Interestingly enough, the interest formula which is very similiar to the principal did produce the correct answer when I used 260.77 * (1 -v ^ 6 - 5 +1) = 260.77 * (1-(1/1.01) ^2). Can someone tell me why the P3 principal formula didn't work here??

lee_onion
April 12th 2008, 10:00 PM
A loan of 1000 at a nominal rate of 12% convertible monthly is to be repaid by six monthly payments with the first payment due at the end of month 1. The first three payments are x, and the last three are 3x. Determine the principal in the 3rd payment, and the interest in the 5th.

I understand the books solution in obtaining the principal. But when I used the P3 formula = 86.92 * (v ^ n - t +1) = 86.92 * (v ^ 6-3+1) = 86.92 *(1/1.01) ^4 does not produce the correct answer. Interestingly enough, the interest formula which is very similiar to the principal did produce the correct answer when I used 260.77 * (1 -v ^ 6 - 5 +1) = 260.77 * (1-(1/1.01) ^2). Can someone tell me why the P3 principal formula didn't work here??

You must notice that the principle formula can only be used in the level payments. You must firstly get the outstanding balance in the previous year to calculate the interest/principle in the current year.