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October 28th, 2013, 01:20 PM   #1
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Most convenient (interest rate)

Assume the interest rate in the market is 11.5%. You want to buy a (small and old) house and
you have three di?erent options of payment (you have 67.000 euros cash):
(a) Today payment: 67.000 euros.
(b) 12.000 euros each year with a initial payment today.
(c) 22.000 euros today and then 7.000 euros each year (with initial payment next year), during 12
years.
Which one is the most convenient for you?
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October 28th, 2013, 09:48 PM   #2
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Re: Most convenient (interest rate)

Quote:
Originally Posted by Fitim
Assume the interest rate in the market is 11.5%. You want to buy a (small and old) house and
you have three di?erent options of payment (you have 67.000 euros cash):
(a) Today payment: 67.000 euros.
(b) 12.000 euros each year with a initial payment today.
(c) 22.000 euros today and then 7.000 euros each year (with initial payment next year), during 12 years.
Which one is the most convenient for you?
Is the purchase price $67,000?
In option b), how many years? 9 years?
"Convenient" means "cheapest"?
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October 29th, 2013, 04:13 AM   #3
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Re: Most convenient (interest rate)

you're right Denis!

Therefore I post this problem here, to obey that this problem have not enough data.

But, this problem we must send to our University in Spain..!
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October 29th, 2013, 05:39 AM   #4
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Re: Most convenient (interest rate)

Can we solve this problem, so, if b) is for 9 year?

a) is 67000
b) is if 1200(1+ 11,5/100)^9
c) 22000 + 7000(1+11,5/100)^{12-1}

Wich is smaller is most cheapest for us?
or..
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October 29th, 2013, 07:01 AM   #5
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Re: Most convenient (interest rate)

Quote:
Originally Posted by Fitim
Can we solve this problem, so, if b) is for 9 year?

a) is 67000
b) is if 1200(1+ 11,5/100)^9
c) 22000 + 7000(1+11,5/100)^{12-1}

Wich is smaller is most cheapest for us?
or..
b) is probably for 12,000 now and then 12,000 annually for 7 years

a: 67,000
b: 12,000 + 55,644.42 = 67,644.42 (PV of 7 annual payments of 12,000 @ 11.5% = 55,644.42)
c: 22,000 + 44,384.08 = 66,384.08 (PV of 12 annual payments of 7,000 @ 11.5% = 44,384.0
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