Question

# Question 1. .Scheduled payments of \$400 due now and \$700 due in five months are to...

Question 1. .Scheduled payments of \$400 due now and \$700 due in five months are to be settled by a payment of \$500 in three months and a final payment in eight months. Determine the amount of the final payment at 6% p.a., using eight months from now as the focal date.

Question 2. Two amounts owing from the past were to be paid today. One debt was \$620 from one year ago and the other was \$925 from six months ago. Determine the single payment today that would fully repay the debts. Allow for simple interest at 12% p.a.

To solve this problem we have to set the originally scheduled payments equal to the replacement payments and \$x i.e the final payment. Since the focal point occurs in the future, we use the future value formula for each payment.

\$400[1+0.06(8/12)] + \$700[1+0.06(3/12)] = \$500[1+0.07(5/12)] + \$x

\$416 + \$710.5 = \$514.58 + \$x

\$x = \$611.92

we need to calculate the future value of the debt due before.

\$620(1+0.12*1) + \$925(1+0.12*0.5)

\$694.4 + \$980.5

=\$ 1674.9

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