Present value
Present value articles on the Math Mental blog, with worked examples solved step by step.
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Upfront or installments? Find the hidden interest
A "0% interest" installment plan is only truly interest-free when the cash price equals the sum of the payments. If the store gives a discount for paying upfront, the installments hide an interest rate. To decide, compute the present value of the payments using the return you could earn by investing the money: if it is higher than the upfront price, pay upfront. In this article's example, a 10% discount versus 10 monthly payments is equivalent to about 1.96% per month, or 26.3% per year.
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