ENGIN 120 Study Guide - Midterm Guide: Cash Flow, Balloon Payment Mortgage
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The error in my math is as follow. Take the 37th period, then its present value should be 1k/[(1. 01)^36 * (1+r)^1]. For the 38th period, its present value should be 1k/[(1. 01)^36 * (1+r)^2], and so on This is because the interest rate in the first 36 periods is 1% per month, and thus we need to discount the first 36 months by this rate. Computing the present value by taking the above into consideration, we get n- Note: you can also compute the future value of the cash flow at period 36, then discount all cashes in time 37, 38, etc back into time 36. The math should work out to be the same. (2c) since (2b) is incorrect, so is (2c). To correct that, just apply what we discussed above to compute the pv of the cash flow. If you see an error, do let me know: we did this in discussion.
