I got into a discussion about how much a contract on a solar energy system contract is discounted when sold to a finance company.
I was told a $50k contract would sell for $30k, that is a 40% discount, I was skeptical, so did the basic math I know, which is limited. Assuming this is a 0% interest contract i.e. the interest is added up front.
If the interest is 0% on $50k for 25 years that is a $166.66 monthly payment or $2,000 a year. So if the finance company bought the $50k contract for $30k, their return on $30k is, [FONT="]$2,000 / $30,000 = 6.67%.[/FONT]
[FONT="] What I'm bothered by is, at the end of the contract you don't get the principal returned, and there is no amortization. The more I look, the less I like my calculation.[/FONT]
[FONT="]
[/FONT]
[FONT="] What is the proper way to calculate the return rate on the discounted contract purchase?
[/FONT]
I was told a $50k contract would sell for $30k, that is a 40% discount, I was skeptical, so did the basic math I know, which is limited. Assuming this is a 0% interest contract i.e. the interest is added up front.
If the interest is 0% on $50k for 25 years that is a $166.66 monthly payment or $2,000 a year. So if the finance company bought the $50k contract for $30k, their return on $30k is, [FONT="]$2,000 / $30,000 = 6.67%.[/FONT]
[FONT="] What I'm bothered by is, at the end of the contract you don't get the principal returned, and there is no amortization. The more I look, the less I like my calculation.[/FONT]
[FONT="]
[/FONT]
[FONT="] What is the proper way to calculate the return rate on the discounted contract purchase?
[/FONT]