Help me! Finance question

syhaphom · #1 (**permalink**) 02-03-2010, 12:58 AM

Robert just joined a new gym and signed up for a one year membership. Membership fees can be paid in 12 monthly payments of $55, due at the beginning of each month or in one payment today. If the appropriate interest rate is 8%, how much should he pay today for the annual membership?

A) 636.48
b) 568.38
c) 570.91
d) 682.06
e) 632.27

also please show me how you got the answer thank you.

Dallas Dollars · #2 (**permalink**) 02-09-2010, 12:56 PM

I didn't know that we are doing homework on this forum. :-)

Iwillsucceed · #3 (**permalink**) 02-11-2010, 12:37 AM

Quote:

Originally Posted by syhaphom

Robert just joined a new gym and signed up for a one year membership. Membership fees can be paid in 12 monthly payments of $55, due at the beginning of each month or in one payment today. If the appropriate interest rate is 8%, how much should he pay today for the annual membership?

A) 636.48
b) 568.38
c) 570.91
d) 682.06
e) 632.27

also please show me how you got the answer thank you.

There is the concept of time value of money, which is simply $x > $x in the future (in normal economy).

So because you want to prepay your membership if you were to pay 55*12, then you will end up paying more. That is why you have to use the discount each of these payments back to "present time" in order to account for the true amount based on the given interest rate. Because it is paid monthly, the interest rate for a month is 0.08/12 = .0067 The calculation is:

55/(1+0.0067)^0 +55/(1+0.0067)^1+ ....+ 55/(1+0.0067)^11 = 636.48

Answer A.

syhaphom · #4 (**permalink**) 02-11-2010, 05:07 AM

Quote:

Originally Posted by Iwillsucceed

There is the concept of time value of money, which is simply $x > $x in the future (in normal economy).

So because you want to prepay your membership if you were to pay 55*12, then you will end up paying more. That is why you have to use the discount each of these payments back to "present time" in order to account for the true amount based on the given interest rate. Because it is paid monthly, the interest rate for a month is 0.08/12 = .0067 The calculation is:

55/(1+0.0067)^0 +55/(1+0.0067)^1+ ....+ 55/(1+0.0067)^11 = 636.48

Answer A.

THANKS! little to late tho

brian · #5 (**permalink**) 02-22-2010, 06:42 AM

Do your homework on time next time then.

Financial Saint · #6 (**permalink**) 02-23-2010, 12:56 PM

I remember those days...wish I had access like this for my homework

GarySpicuzza · #7 (**permalink**) 02-23-2010, 01:25 PM

Quote:

Originally Posted by syhaphom

Robert just joined a new gym and signed up for a one year membership. Membership fees can be paid in 12 monthly payments of $55, due at the beginning of each month or in one payment today. If the appropriate interest rate is 8%, how much should he pay today for the annual membership?

A) 636.48
b) 568.38
c) 570.91
d) 682.06
e) 632.27

also please show me how you got the answer thank you.

None of the above.

The correct answer is $611.15

$55 monthly fee x 12 months = $660.

$611.15 annual fee + 8% annual interest = $660.04

Do you have something a wee bit more difficult?

syhaphom · #8 (**permalink**) 02-26-2010, 04:09 AM

Quote:

Originally Posted by GarySpicuzza

None of the above.

The correct answer is $611.15

$55 monthly fee x 12 months = $660.

$611.15 annual fee + 8% annual interest = $660.04

Do you have something a wee bit more difficult?

Actually the answer is A.

syhaphom · #9 (**permalink**) 02-26-2010, 04:11 AM

BA II calculator
Bgn Mode
N=12
I/y= .67 (8%/12)
PMT= 55
FV= 0
PV= -636.48

syhaphom · #10 (**permalink**) 02-26-2010, 04:12 AM

I would if I knew how to do it at that point

Quote:

Originally Posted by brian

Do your homework on time next time then.

GarySpicuzza · #11 (**permalink**) 02-26-2010, 02:48 PM

Quote:

Originally Posted by syhaphom

Actually the answer is A.

Maybe,

the way you do your math....NOT the way I do mine.

kenyant · #12 (**permalink**) 03-30-2010, 12:20 PM

that is a whole lot of money to spend on a gym... particularly because you can get the same results with morning and evening jogs in the parks....... hey it a personal finance forum aint it???

David Morson · #13 (**permalink**) 05-19-2010, 08:12 AM

What a test of the Intellect. I think that the answer is round about 632 or 636 but I can't for quite sure as it is merely a rough guess.

debt.advisor · #14 (**permalink**) 08-28-2011, 11:47 PM

Answer is "A"

alangrant01 · #15 (**permalink**) 12-25-2011, 05:16 AM

Answer is c

sgfx financials

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