Resend: Loan payments vs financial calculator mismatch

Mike C. subscribe307 at verizon.net
Tue Oct 20 10:45:15 EDT 2009


What Novack offered is exactly right. Using end of period payment, the 
payments in the example are 345.37 and using beginning of period 
payment, the payments are 343.48 using the Excel spreadsheet formulas  
which is close enough to 343.53 to be considered rounding error.   The 
only error seems to be that Gnucash doesn't specify which method it is 
using in each case and they are not consistent between the druid and the 
financial calculator.

Mike or Penny Novack wrote:
>
>> 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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