How good is your financial knowledge?

baileysbattlebus

alphabeta wrote: »

The credit card question is more complicated than it seems, and BBC have got the wrong answer. I hope their answer was not provided by someone working in the banking industry!

The most reasonable way of dealing with this problem is to write a short program that simulates the repayment process. Here is a short FORTRAN code that does this:

program inter
      parameter (sumi=500., ppay=2.0, pint=1.5, pmin=5.)
      sum = sumi
      payt = 0.
      m = 0
 10   paym = sum*ppay/100.
      if (paym.lt.pmin) paym = pmin
      if (sum.gt.paym) then 
        sum = (sum - paym)*(1. + pint/100.)
        payt = payt + paym
        m = m + 1
        go to 10
      endif
      payt = payt + sum
      if (sum.gt.0.) m = m + 1 
      write (6, *) m, payt
      stop
      end

sumi is the initial sum, ppay is the minimum monthly payment as percentage of the outstanding balance, pint is the monthly interest (18%/12), and pmin is the minimal monthly payment. m is the month counter, sum is the sum owned (becomes smaller month after month), and payt is the total sum repaid.

Running the program produces 221 months (18 years and 5 months), and a total repayment of 1394.38.

Interesting - I did it on a spreadsheet and came up with 19 years and 4 months with interest repayable of £966 so total repayable £1466 - worked out with 1.5% interest payable monthly and 2% or £5 repayment - I think it was the same as the BBC. I described it in an earlier post.

Also if you work it out at 18% per year you get £748 total repayable £1248 interest and repayment time of 16 years and 8 months - which may have been the BBC's original figure.

I also get the same figure if I plug the numbers into the calculator on here -
1.5% per month for one calculation and 18% per year on another

didn't know there was one till today!

So MSE, the Beeb and me must be doing something wrong!

http://www.moneysavingexpert.com/cards/minimum-repayments-credit-card#calc

Thrugelmir

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.

Try using a spreadsheet!

alphabeta_2

My small program was assuming that interest was charged on the sum remaining after the monthly payment was made. If one assumes that it is charged on the outstanding sum before the monthly payment, then one gets the BBC result. Here is the modified code:

program inter
      parameter (sumi=500., ppay=2.0, pint=1.5, pmin=5.)
      sum = sumi
      payt = 0.
      m = 0
 10   if (sum.gt.0.) then
        m = m + 1
        paym = sum*ppay/100.
        sum = sum*(1. + pint/100.)
        if (paym.lt.pmin) paym = pmin
        if (sum.lt.paym) paym = sum
        sum = sum - paym
        payt = payt + paym
        go to 10
      endif
      write (6, *) m, payt
      stop
      end

This produces 232 months and £1465.55. The devil is in the detail...

baileysbattlebus

My small program was assuming that interest was charged on the sum remaining after the monthly payment was made. If one assumes that it is charged on the outstanding sum before the monthly payment, then one gets the BBC result.

I think they do add the interest before the payment is made - god forbid they might not make as much money as they possibly can.

Anyway your bit of code is about 220 lines shorter than my spreadseet!

PasturesNew

I got 9. I got the ISA interest question wrong, but I completely guessed... I didn't even know they had said a figure, never mind how much.

baileysbattlebus

PasturesNew wrote: »

I got 9. I got the ISA interest question wrong, but I completely guessed... I didn't even know they had said a figure, never mind how much.

I got the same one wrong - along with the credit card one -

I didn't even realise it was an ISA they were talking about until I read your post. I just glanced the questions and obviously missed a good portion of that one. I would still have got it wrong.

Story of my life really......................

b0rker

7/10

At least one was a guess...

mewbie_2

alphabeta wrote: »

My small program was assuming that interest was charged on the sum remaining after the monthly payment was made. If one assumes that it is charged on the outstanding sum before the monthly payment, then one gets the BBC result. Here is the modified code:
<snip>
The devil is in the detail...

You're fired.

SingleSue

Blimey, some of you took the quiz really seriously....I just clicked a few buttons and took maybe 20 seconds to answer the whole thing!

Cleaver

alphabeta wrote: »

program inter
      parameter (sumi=500., ppay=2.0, pint=1.5, pmin=5.)
      sum = sumi
      payt = 0.
      m = 0
 10   paym = sum*ppay/100.
      if (paym.lt.pmin) paym = pmin
      if (sum.gt.paym) then 
        sum = (sum - paym)*(1. + pint/100.)
        payt = payt + paym
        m = m + 1
        go to 10
      endif
      payt = payt + sum
      if (sum.gt.0.) m = m + 1 
      write (6, *) m, payt
      stop
      end

Lost. Will. To. Live. Send help. And pictures. Of. Naked ladies. <end?>