Sharp EL733A EL-733A Operation Manual - Page 35

For

9.5

with

2.5%

up

front:

(2nd9

IRCL1

pv

E

2.5

H.

9.5

N2

W9

M

IOWA

TA

Result:

2'250.00

Result:

—756.77

This

verifies

what

you

already

know

about

FHA

fi

nancing,

the

more

points

up

front

you

are

willing

to

pay,

the

smaller

the

payment.

Example:

A

fi

nance

company

is

charging

finance

charges

up

front

on

loans

of

up

to

$25'000

with

quarterly

payments

in

arrears.

The

interest

rate

they

use

to

calculate

the

payment

is

14%

APR

compounded

quarterly

and

the

term

is

negotiable.

The

fi

nance

charge

is

3/4%

per

year

of

the

contract.

You

are

interested

in

a

fi

ve

year

loan

of

$18'000

for

home

improvement.

What

would

your

payments

be

if

you

chose

to

go

with

this

finance

company,

and

(including

the

prepaid

fi

nance

charges)

what

periodic

rate

would

they

be

earning

on

the

money

they

loan

to

you?

Solution:

As

you

saw

in

the

previous

example,

whenever

you

are

dealing

with

prepaid

fi

nance

charges,

if

you

wish

to

compute

the

actual

interest

rate,

you

have

to

do

it

in

two

steps.

The

first

step

is

to

compute

the

payment

without

considering

the

prepaid

fi

nance

charges.

The

second

step

is

to

compute

the

actual

interest

rate

considering

the

loaned

money

less

the

fi

nance

charges

as

the

actual

Present

Value.

The

cash

-flow

schedule

for

the

fi

rst

step,

which

is

the

payment

calculation,

is

as

follows:

66

i

PV

=

18'000

1

42

)

r

2

.

1

7

4

i=14+

4

n

=

5

x

4

1

6

1

6

1

7

1

6

1

9

1

20

1

PMT=?

FV

=

0

The

keystrokes

for

a

payment

calculation

should

be

looking

at

least

vaguely

familiar

by

now.

However,

because

this

loan

calls

for

quarterly

payments,

you

will

not

use

the

x12

and

FM

functions:

(Mode:

FIN)

18'000

14

M

4

0

M

5

4

HE!

o

Egg

Result:

—1'266.50

So

your

quarterly

payment

would

be

$1'266.50,

which

is

a

fairly

round

number.

Now,

the

prepaid

finance

charges

you

have

to

pay

depend

upon

the

length

of

the

loan.

You

wish

to

borrow

the

money

for

five

years,

and

with

a

fi

nance

charge

of

3/4%

per

year,

the

calculation

looks

like

this:

12nd0

ECU

El

0

.75

IfEl

E

5

El

Subtract

this

finance

amount

and

calculate

67

Result:

675.00

charge

from

the

borrowed

the

actual

periodic

rate:

Sharp EL733A EL-733A Operation Manual - Page 35

Sharp EL733A Manual

Page 35 highlights