Fight Finance

Courses  Tags  Random  All  Recent  Scores

Scores
keithphw$6,001.61
Yuan$1,726.43
Zin$1,619.43
Jade$1,555.80
Carolll$1,522.43
Visitor$1,428.33
Visitor$1,373.33
zy$1,349.70
cuiting$1,289.70
Visitor$1,268.61
Visitor$1,251.28
Visitor$1,249.70
Visitor$1,153.33
Emma Lu$1,100.00
Skywalke...$1,070.00
mm11$1,050.33
ninalee$1,039.70
Visitor$1,035.61
Visitor$1,024.70
Doris$1,009.70
 

Question 761  NPV, annuity due, no explanation

The phone company Optus have 2 mobile service plans on offer which both have the same amount of phone call, text message and internet data credit. Both plans have a contract length of 24 months and the monthly cost is payable in advance. The only difference between the two plans is that one is a:

  • 'Bring Your Own' (BYO) mobile service plan, costing $80 per month. There is no phone included in this plan. The other plan is a:
  • 'Bundled' mobile service plan that comes with the latest smart phone, costing $100 per month. This plan includes the latest smart phone.

Neither plan has any additional payments at the start or end. Assume that the discount rate is 1% per month given as an effective monthly rate.

The only difference between the plans is the phone, so what is the implied cost of the phone as a present value? Given that the latest smart phone actually costs $600 to purchase outright from another retailer, should you commit to the BYO plan or the bundled plan?




Copyright © 2014 Keith Woodward