Posted by Sean on May 26, 2000 at 08:44:35:

Actually this is a great example of the time value of money. Let’s look at it another way – let’s say we are set on having a 116% yield and the person approaches us with the second note (the one having 60 payments instead of 36). How much more are you willing to pay?

The answer is $50.51 more. Those extra 24 payments of $150 are worth only $50.51 because they are so far in the future. Money today is truly worth more than money in the future.

To calculate on my calculator:

36 [n]

1500 [PV]

-150 [PMT]

0 [FV]

[CMPT] [i%] (9.64% monthly, 116% annually)

60 [n]

[CMPT] [PV] (1550.51)

That’s only $50.51 more than the $1500 we’d originally pay. I think it’s great that you’re getting such good yields. Keep up the good work!