How good is your financial knowledge?

Darth_Marty

9/10....wow, the credit card got me, jesus thats incredible, 19 years to pay off 500 quid?! !!!!inghelljesusonastick

456789

8/10 - got the first 2 wrong

nickmason

stevetodd wrote: »

I did it in my head but got it wrong, I worked it out as:

£500 x 18% = £90 interest
2% piad per month = £10/month so £120 a year
£120 year paid less £90 interest - £30 off the total owed

£500/£30 = just over 16 and a half years ie 16 years 8 months but obviously that was incorrect because I didn't allow for the fact that the 2% paid monthly reduces as time goes on (because the capital owed is reducing over time), so you pay off less per year, hard to work out accurately in your head, but easy in one way as you know its more than 16 years 8 months so must be the one answer that is longer

I tried to do it in my head and failed.

But the logic above is flawed, because of the minimum £5 payment, which kicks in when the balance is £250, after about 11 years.

ALL OF THIS IS DELIBERATELY BACK OF THE FAG PACKET STUFF - IT ISN'T MATHEMATICALLY PRECISE!

(and apologies in advance, it did become more geeky than I intended)

Up to that point, you are basically paying off 0.5% each month. (there's an approximation here of levelling 18% as 1.5% per month).

At the beginning, 0.5% equates to £2.5. At the £250 point, 0.5% equates to £1.25

So the average will be about £1.80; to pay off £250 will require 139 payments.

After that the interest gradually drops from £3.75 to £0, but because the repayment isn't linked to that amount, the drop isn't linear.

If it were linear that would mean an average of £1.87, the payment is £5 fixed, so the net reduction is £3.17. At this rate paying off the second £250 takes another 79 payments.

139+79 payments = 218 payments, or 18 years, 2 months. We know the non-linearity of the interest, so it'll be longer than that.

So D

PS - Does anyone know a shortcut for working out the uplift for the non-linearity? The average net reduction value that is required to hit the right figure is in fact 60% of the starting amount. I seem to remember something about a rule of 7, but can't work out how it would be implemented.

nickmason

To make amends, here is a useful accounting trick
If you've switched two digits around, say typing
12435 rather than
12345
then the difference is always perfectly divisible by 9.

In other words, if your accounts don't add up, but the error is divisible by 9, then the chances are you've juxtaposed two digits.Has helped me on many a long night....

lostinrates

Darth_Marty wrote: »

9/10....wow, the credit card got me, jesus thats incredible, 19 years to pay off 500 quid?! !!!!inghelljesusonastick

So, now its made me wonder exactly when the tremendous credit binge this is blamed in started in earnest?:eek: :eek:

steadysaver

10 out of 10 for me, I did the test this morning and confess I guessed at the CC and average interest question though.

stevetodd

nickmason wrote: »

I tried to do it in my head and failed.

But the logic above is flawed, because of the minimum £5 payment, which kicks in when the balance is £250, after about 11 years.

ALL OF THIS IS DELIBERATELY BACK OF THE FAG PACKET STUFF - IT ISN'T MATHEMATICALLY PRECISE!

(and apologies in advance, it did become more geeky than I intended)

Up to that point, you are basically paying off 0.5% each month. (there's an approximation here of levelling 18% as 1.5% per month).

At the beginning, 0.5% equates to £2.5. At the £250 point, 0.5% equates to £1.25

So the average will be about £1.80; to pay off £250 will require 139 payments.

After that the interest gradually drops from £3.75 to £0, but because the repayment isn't linked to that amount, the drop isn't linear.

If it were linear that would mean an average of £1.87, the payment is £5 fixed, so the net reduction is £3.17. At this rate paying off the second £250 takes another 79 payments.

139+79 payments = 218 payments, or 18 years, 2 months. We know the non-linearity of the interest, so it'll be longer than that.

So D

PS - Does anyone know a shortcut for working out the uplift for the non-linearity? The average net reduction value that is required to hit the right figure is in fact 60% of the starting amount. I seem to remember something about a rule of 7, but can't work out how it would be implemented.

If you are saying the last answer is not correct then it's not my logic that's flawed it's the BBC's! I simply said it had to be the one answer that was longer in duration than the 16 year one (all the alternatives are too short), which is logical (given that the correct answer is one of the options)

nickmason

stevetodd wrote: »

If you are saying the last answer is not correct then it's not my logic that's flawed it's the BBC's! I simply said it had to be the answer that was longer in duration than the 16 year one, which is logical (given that the correct answer is one of the options)

You got the right answer, but the way you got to 16 years being too short was flawed (I think).

I am absolutely tickled by the fact that the Beeb got it wrong:rotfl:

baileysbattlebus

SGE1 wrote: »

Anyone care to explain how the APR answer was worked out? I got the desktop calculator out and tried to work it all out, but couldn't figure out how to do the calculation.

I did it like this

500 - 10 = 490

490 * .015 = 7.35

490+7.35 = 497.35 (end month one)
and as the balance drops so will the payment you make every month- until you get to a balance of 250 then the payment stays constant at £5

so at the end of month 2 your payment would be 9.95
and the next month 9.90 and so on - the payment is 2% of the balance - which is £10 for the first month only

after 11.5 years of this your payments would be £5 per month and your balance £250

to pay off, I worked out would be 19.3 years

I got it wrong on the bbc questionnaire - but did it on a spreadsheet afterwards - because it seemed an insane amount of time - but it wasn't

stevetodd

nickmason wrote: »

You got the right answer, but the way you got to 16 years being too short was flawed (I think).

I am absolutely tickled by the fact that the Beeb got it wrong:rotfl:

I know that's the point that I originally made, that I did NOT calculate it correctly and came up with 16 years so the answer had to be more than marginally longer because I did not take into account decreasing capital payments, which had a significant feect (dampened in later years as you say by the min payment but which is still only half of the original repayment).

The BBC has probably had 1000's of emails about it