Need help with a question from Essential financial maths!

[fisa2001]

Q28 from pg 598.

A couple puts a 20 000 down-payment on a new home and arranges to pay off the rest in monthly instalments of $625 for 30 years at a monthly compounded interest rate of 8.5% per annum.

a:) What was the selling price of the house, to the nearest cent?

There was a question similar to this, asking for the original price of something but I can't seem to work it out :l.

[Stick]

Use your financial solver.

N: 30*12 = 360
I%: 8.5
PV: ?
PMT: -625
FV: 0
P/Y: 12
C/Y: 12

Add $20000 to whatever the calculator spits out, as the interest is not calculated on the deposit.

[fisa2001]

Use your financial solver.

N: 30*12 = 360
I%: 8.5
PV: ?
PMT: -625
FV: 0
P/Y: 12
C/Y: 12

Add $20000 to whatever the calculator spits out, as the interest is not calculated on the deposit.

AH, forgot to add $20000 at the end. Thanks man.

Just one more question though

A flat rate loan over 6 years at 12.75% per annum amounted to a repayment of $12 500.
a:) How much was originally burrowed?

I donno why but it was killing me last night.

[TrueTears]

Assuming compounding interest (which is the convention for years greater than 1), we have the equation of value:

(Here I also assume the rate given is effective per annum)

FV=PV(1+i)^t

12500 = PV(1+0.1275)^6

solve for PV

[fisa2001]

Assuming compounding interest (which is the convention for years greater than 1), we have the equation of value:

(Here I also assume the rate given is effective per annum)

FV=PV(1+i)^t

12500 = PV(1+0.1275)^6

solve for PV

I used the equation you wrote above and it gives me 6084.30, but the answer tells me that the correct answer is  7082.15 :l

[TrueTears]

Assuming compounding interest (which is the convention for years greater than 1), we have the equation of value:

(Here I also assume the rate given is effective per annum)

FV=PV(1+i)^t

12500 = PV(1+0.1275)^6

solve for PV

I used the equation you wrote above and it gives me 6084.30, but the answer tells me that the correct answer is  7082.15 :l

Yeah ok they did simple interest lol

PV+PV(0.1257)(6) = 12500

Solving for PV yields the answer they have.

Unless there is some convention in further maths that always assumes simple interest, then what they've done is technically incorrect in real world and a financial context. There are no banks that ever charge simple interest for a term of 6 years lol

[brenden]

Nah TT, there is no such convention, they're just throwing random questions out to get people to apply the simple interest formula in the relevant chapter exercises.

[fisa2001]

Assuming compounding interest (which is the convention for years greater than 1), we have the equation of value:

(Here I also assume the rate given is effective per annum)

FV=PV(1+i)^t

12500 = PV(1+0.1275)^6

solve for PV

I used the equation you wrote above and it gives me 6084.30, but the answer tells me that the correct answer is  7082.15 :l

Yeah ok they did simple interest lol

PV+PV(0.1257)(6) = 12500

Solving for PV yields the answer they have.

Unless there is some convention in further maths that always assumes simple interest, then what they've done is technically incorrect in real world and a financial context. There are no banks that ever charge simple interest for a term of 6 years lol

Just found the equation in the text book :S Can't believe I was stuck in that question for like an hour lol. Thank you for solving it though