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what questions are there?
yay! ok hold on a sec :)
ok one sec
I'm curious if you've learned the remaining balance of a loan formula at all?
ummm i think so one sec
are there any more formulas? I see one that will help with the monthly payment, but I don't see a remaining balance formula
let me double check
btw the formula at the very top will be useful for part 2 (since you don't pay down any of the debt, which makes calculating the balance much easier)
no there are no other formulas
sorry got distracted, one sec
well I have a remaining balance formula, but it's a bit complicated and I'm not sure you've learned it yet
well lets try it!
ok the formula is B = L*(1+r/n)^k - (P*n/r)*( (1+r/n)^k - 1 ) Where, B = Remaining balance at month k (payment is made on month k) L = Loan amount P = Payment per period r = Annual interest rate n = Compounding frequency k = Point in time where you want to find the remaining balance (time in months)
no i havnt learned that but i can see what they all mean
In this case, B = Unknown (we're solving for this) L = 289.99 P = 25 r = 25.24 n = 12 (we're compounding it monthly) k = 6 (you want to find the remaining balance at month 6)
Plug all these values in to get B = L*(1+r/n)^k - (P*n/r)*( (1+r/n)^k - 1 ) B = 289.99*(1+0.2524/12)^6 - (25*12/0.2524)*( (1+0.2524/12)^6 - 1 ) B = 170.453723678253 B = 170.45
this is the remaining balance?
So what this means is that if you buy a TV that costs 289.99 and you make 6 monthly payments during the deferment period, this will mean that you would still owe $170.45 after the deferment period is over
6 monthly payments of $25*
this is number 1 right?
thats easier to understand then i expected actually! haha lets move on to number two
ok now we use the monthly payment formula since it says that we don't have to show work, we can use a monthly calculator instead which method do you want to use?
we can just use the calculator:) its much easier
ok great, go here then http://www.bankrate.com/calculators/mortgages/loan-calculator.aspx and type in 170.45 into the loan amount box, 5 in the years box, and 25.24 in the rate box and hit calculate tell me what you get
ok one sec :)
i got 5.03?
that's the monthly payment and the answer for #2
for #3, during the deferment period you paid 25*6 = 150 dollars then after the deferment period, you paid 60*5.03 = 301.8 dollars (since 5 years = 60 months) in total you paid 150 + 301.8 = 451.80 dollars the total cost is therefore 451.80 dollars
#4 should be pretty straight forward
no you subtract 451.80 - 289.99
this is to find out how much extra you pay over the long run (if you finance instead of just pay all of the $289.99 at once)
for the next little section i know im going to have some trouble because thiese questions dont include the minimum payment...
ok for #1 in the next section, you are going to use the formula that is B = P(1+i)^(nt)
In this case P = 289.99 i = 0.2524/12 n = 12 t = 6/12 = 0.5
i didnt get 0.5??
t is time in years so 6 months = 6/12 = 0.5 years
that's why t = 0.5
oh i miscalculated it. now i got it:)
ok what do we do for number 2?
what did you get for #1
no that's not the answer to #1
use the formula I wrote above
no that was the answer to #1 from part 1
oh i thought thats what you meant
no i mean #1 from part 2
i dont know? i dont know how to find the mpnthly pay ment....
plug these values P = 289.99 i = 0.2524/12 n = 12 t = 6/12 = 0.5 into the formula below B = P(1+i)^(nt)
wouldnt that give me the same exact answer since we already plugged these numbers into this formula?
no it's much higher than 170.45
ok one sec.
so B= 328.566?
oh wait, hold on
what? i dont understnad i plugged them all and and solved it...
sorry made a typo, I'm getting 289.99(1+0.2524/12)^(12*0.5) = 328.565943133299 so you are correct
so the answer to #1 in part 2 is 328.57
oh whew! and woops i thought this was the answer to number 2 in part 2 lol
no you use that calculator you used from part 1
to answer #2 in part 2
oh! let me try this one on my own hold on just a sec :)
oh gosh not even close. i dont know what to plug in
328.57 in the loan amount box 5 in the years box 25.24 in the rate box
ok one sec
to answer #3, you need to multiply the number of months (60) by the monthly payment ($9.69) to get the total cost
thats the answer to number #3? it seems like we did more work in part 1 number #3? rather than this onw?
well that's because back in part 1, there's the amount you add on during the deferment period
but you don't have to worry about that in this part
oh gotcha! that makes sense:)
now number 5 :)
what did you get for #4
oh my gosh sorry ahah im getting ahead of myself. i meant number 4
#4 is pretty straight forward, tell me what you get
you are subtracting the original cost from the total cost 581.4-289.99 = ??
for the last question #5, you need to divide 289.99 by 6 to get 289.99/6 = 48.3316666666667 then you round that up to the nearest penny to get 48.34 so the monthly payment of $48.34 is guaranteed to pay off the $289.99 bill before interest kicks in
i was confused a little bit. i got it now! Can you help me with one more section?
glad it's making sense and sure
its just the analysis :)
ok tell me what you got for this
what do you mean?
how far did you get with this section
oh im still on number 1
so any ideas what the difference between the total cost and the original cost represents?
it represents which one is better?
the TV originally costs $289.99 but if you pay more overall ($451.80) when you use the deferment plan, then that difference is the amount of total interest you pay
so it basically represents the total amount you pay for the tv?
it's the amount extra you pay for delaying the payments and spreading them out more
so that's what you have to worry about: if you pay less per month or put off payments (ie defer them), then you end up paying more overall
you could either buy the TV completely and pay $289.99 and this is a one time payment (or could be done within 6 months) OR you could spend $451.80 if you pay the min payment of $25 during the deferment period and then pay the monthly payment of $5.03 for the next five years so you can see that you pay a lot more money for the TV in the long run over the 5 year period
ooooh :) i get it now haha
yes this is why credit is dangerous and why people get into trouble with it
yikes! and number 2 i say no because i would only have to pay $48.34 a month is i dont pay with the minimum payment
correct, the min payment is not enough to buy the TV
that's another thing you have to make sure you don't do: do NOT go for the min payment or you will spend a lot longer paying it off and you'll be spending a lot more money in the long run
exactly:) but i dont know about number 3 :(
what was the total cost in part 1?
no, the total cost
look at #3 in part 1
oh 451.80 dollars!
yes that's the total cost if you do the min payment during the deferment period
what is the total cost if you don't do the min payment during the deferment period
now subtract the two figures
that's the difference between the two plans so if you don't make the min payments, then you pay 129.60 more dollars
so you can see why that law is put in place
because you pay more if you don't make the min payment
so it's like a way to stop companies from getting away with charging too much for a product
what about number 5?
what do you think about #5
If you're in college, then perhaps you have a college loan so you may know a thing or two about them
im not in college :( but i think it has something to do with paying off payments during a period of time?
usually the interest rates for student loans are much lower than deferment plans you find in stores these interest rates are lower because some loans are subsidized by the government (ie they pay for a portion of it to keep the rates low)
also there's a lot more competition which is why the rates are lower
so instead of finding a 25.24% interest rate (which is really high), you'll find interest rates like 3.4% or 6.8%
i dont see what this has to do with them being similar or different? i dont get it
I just explained how they're different, their rates are different (usually much lower)
oh! because of the rates! i got it now. Thank you so much for helping me with my assignments. I take an online math class so its hard to understand the material but for some reason i understand it after you explain it steo by step!
glad it's making sense now
thank you so so so soooo much!
you're very welcome