### CFA Practice Question

Assume you buy a computer for \$1,350 and agree to pay for it with 24 monthly payments of \$45, beginning next month. What is the size of the final payment needed at month 24 to completely pay off the computer, if the interest rate you are being charged is 16% per year, compounded monthly? This final payment should exclude the final monthly payment.
A. \$387.14
B. \$494.39
C. \$592.21
Explanation: This question describes a situation often called a balloon payment. On the BAII Plus, press 24 N, 16 divide 12 = I/Y, 1350 PV, 45 +/- PMT, CPT FV. On the HP12C, press 24 n, 16 ENTER 12 divide i, 1350 PV, 45 CHS PMT, FV. The answer is shown as a negative number. Make sure the BAII Plus has the value of P/Y set to 1.

User Comment
KD101 Payments needs to be entered negatively
chenyx N=24,I/Y=16/12,PMT=-45,-->FV=1263
N=24,I/Y=16/12,PV=-1350,-->FV=1855
1855-1263=592
wollogo Thanks chenyx - that is a very good explanation, the fv of the principal minus the fv of the payments equals the principal remaining.
julamo In 1 step:

N=24
I/Y=1.3333
PV=-1350
PMT=45

CPT FV = 592.2
dimanyc i guess i don't understand why we compound the pmt of 45, when it clearly says that we agree to 45/month and 45*(1+r)^n per month?!
rgat Not sure about this one. The question is looking for the 24th payment, which will be different from payments 1-23.
Why would we not use n=23 payment periods to come up with the FV of our "obligation" @ month 23. It is that FV @ 23 which would represent the lump sum payment to net the obligation to zero. Any help...
hannovanwyk No rgat. The question basically says after you make 24 payments, what amount (balance) do you need to pay to clear this debt?
u0302638 I did like Julamo..although I am not very sure on using N=24..