Resend: Loan payments vs financial calculator mismatch
Mike or Penny Novack
stepbystepfarm at mtdata.com
Tue Oct 20 07:49:08 EDT 2009
>I guess it still is. But "fencepost error" seems to be what landed in
>the "Hackers Dictionary" (http://www.ccil.org/jargon/jargon_21.html).
>Wikipedia does list 'telegraph pole' and 'lamp-post' error as
>alternitive terms:
>
>http://en.wikipedia.org/wiki/Fencepost_error#Fencepost_error
>
>
>
OK, but the cause? In this case the first thing I would check is the
right formula (computation process) being used for the wrong type of
"annuity" (series of
"rents") in computing the "present value at some discount rate" --
sorry, but that are the terms used and there isn't really a difference
between paying X now to receive a series of future payments (what we
call an "annuity") or agreeing to make a series of payments in exchange
for the loan principle now (what we call an "amortized loan"), just
which side of the transaction you are on.
There are two kinds of annuities, one in which you receive (or make) the
first payment immediately and the other in which you receive (or make)
that first payment the end of the first interval and these two are off
by exactly one period in computing the present value. An amortized loan
is normally of the second sort.
Michael D Novack, FLMI
(and ROFLOL, exactly the sort of thing I had to learn getting my FLMI
designation)
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