The borrower pays $430.41 each month for this note.Part 2: Current Owed N: 98 (It's now 22 months into the note, which means that there are 120 - 22 = 98 months remaining) I/YR: 12 (The borrower is paying 12% interest on the note) PV: (This is what I'm trying to find) PMT: 430.41 (From part 1) FV: 0 (The note amortizes fully)
The borrower owes $26,808.59 after paying on the note for 22 months.Note that last time, I did this type of calculation differently - as an FV calculation rather than a PV calculation. Both are valid approaches for this sort of problem, you just have to make sure you set up your variables correctly. Part 3: Total Collected If I buy the note, the borrower will send me 98 payments of $430.41 (from Part 1). 98 x $430.41 = $42,180.18. (When doing this calculation, make sure to type in the 430.41 instead of recalling it from the PMT slot, as the slot has fractional pennies included, which I'm not receiving.) Part 4: Total Profit If I pay $26,808.59 for the note, and over time it brings in $42,180.18, that means that overall I'll earn $42,180.18 - $26,808.59 = $15,371.59 in interest income (AKA profit).
What do you think? Would you buy this note? Why or why not? Can you think of something better to do with $27K than getting 8+ years of an extra $430 every month? Let us know about it in the comments!