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## Paying for 2 years up front

Note: You can use any financial calculator to do this problem, but if you want the BEST, you can get our 10bii Financial Calculator for iOS, Android, Mac, and Windows!

THE SCENARIO Earlier this week I decided to buy some software to improve my computer-security posture for myself and my wife, and the price was \$49.99 for two devices for one year. When I got to the part of the process where I could put in my credit card information, I saw that there was a '2 year subscription' option. Curious, I clicked that radio button to see what the price was - \$84.99. I feel confident that I'll buy the second year once the first year has elapsed. The question: If I pay \$84.99 today instead of paying \$49.99 today and then \$49.99 a year from now, what's my rate of return on the extra \$35.00 I pay today?
THE SOLUTION The setup for this one is simple once I understood that I'm trading \$35 today in order to not have to pay \$49.99 a year from now. As we know, not having to pay a dollar is equivalent to receiving a dollar. First things first, make sure the calculator is using 12 Payments per Year. N: 12 (The difference to me only lasts a year - I either pay for the second year now at a discount, or pay for one year now and then pay again after 12 months) I/YR: (This is what I'm trying to find) PV: -35 (I'm paying an extra \$35.00 today to save myself \$49.99 a year from now) PMT: 0 (There are no monthly payments in the interim) FV: 49.99 (Paying the extra \$35.00 today saves me \$49.99 a year from now)

If I pay for two years today, the return on my extra \$35.00 is 36.18%.

Naturally, I did pay for the 2-year subscription, as 36% returns are well within my 'acceptable' range.

What do you think? Would you pay for 2 years up front, or would you wait a year to see if they give a renewal discount, drop their price, go out of business, or do something else that would change the value proposition? Let us know in the comments!