Payment Scheme and the Effect of Compounded Interest: An Analysis under Three Scenarios
Journal Title: Saudi Journal of Business and Management Studies - Year 2017, Vol 2, Issue 8
Abstract
Abstract: The aim of this paper is to analyze a pay scheme with three possible scenarios, all under the hypothetical premise of the purchase of an appliance under three different terms of payment. In theory we know that the greater the capitalization of an interest rate, the greater the increase of the burden of interest on the person who acquires the credit. However, the calculations show that option 4, weekly payments, appears to be the option with the smallest interest payment (5.93%) versus 5.99% and 6.20% for options 2 and 3, respectively. Finally, it is important to mention that the import of each payment is what makes the difference: option 2 is $106.62, option 3 is $53.18 and option 4 is $24.53. Option 1 is cash payment. Keywords: interest rate, compound interest, annuity, consumption, savings, AMS: 91B28, JEL: G210
Authors and Affiliations
Ignacio Ortiz-Betancourt, Arturo, García-Santillán, Ferrer-Nieto C, López-Martínez M .
Keywords
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