Question

1. The following series of payments will repay a present sum of $5000 at an 8% interest rate. Use single payment factors to find the present sum that is equivalent to this series of payments at a 15% interest rate.

Year	End of year Payment
1	$1400
2	1320
3	1240
4	1160
5	1080

Answer 1

ANSWER:

i = 15%

pw = cash flow in year 1(p/f,i,n) + cash flow in year 2(p/f,i,n) + cash flow in year 3(p/f,i,n) + cash flow in year 4(p/f,i,n) + cash flow in year 5(p/f,i,n)

pw = 1400(p/f,15%,1) + 1320(p/f,15%,2) + 1240(p/f,15%,3) + 1160(p/f,15%,4) + 1080(p/f,15%,5)

pw = 1400 * 0.8696 + 1320 * 0.7561 + 1240 * 0.6575 + 1160 * 0.5718 + 1080 * 0.4972

pw = 1217.44 + 998.05 + 815.3 + 663.28 + 536.97

pw = 4231.05

so the present sum at 15% interest rate is $4,231.05