Peter with the most toys proclaimed himself as the richest among his peers because he possess 20 toys compared to Helen, 10 toys, Lisa, 5 toys and so forth. Best of all, Peter received $5 every month for the rental (20 toys * 25 cents). Everyone admires of his brilliant “investment”. This is what appears in front of the public. On the other hand, $5 rental Peter receives not all goes into his pocket. He needs to pay back the installments plus interest to his financier, Tom. As the contract signed between them, there will be 360 monthly installments to be served by Peter where the interest rate fixed at 6.9% per annum, the up front payment is $100. There is no admin fee and other charges imposed. The monthly installment that Peter needs to serve is $6.26. OOOOpssssssss……..how to serve $6.26 when Peter only receives $5 rental per month? He got to find ways to earn extra in order to touch up the difference of $1.26 every month. At the same time, he reassures himself that the “investment” is a good investment because the limited edition Mickey Mouse price will only goes north because of its scarcity. While it is painful to serve the installment over 30 years period, it is still worth because after the period, he will own 20 limited edition toys which will worth more by then. This is his belief and he puts his faith on it.
30 years is a long period, you never know what will happen in between the period. Something good or bad might happens along the way. True, limited edition Mickey Mouse soars its price from $100 (when Peter first bought it) to $250 after 15 years. Peter is so happy that he made a smart choice because his “investment” appreciates more than double in 15 years. He predicts that the same trend will continue for the next 15 years, that’s when he finishes serving all the installments. At that time, he assumes the price of the toys will be $625 ($250 + ($250*150%)). With 20 toys on hand, he net worth will be $12,500 by then.
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