Question

Kathy owes $4975 in 6 years and $12500 in 11 years. Fortunately, Kathy won a state lottery and wanted to pay off both obligations at the end of 3 year(s). By mutual agreement with the lender, she was allowed to settle both debts with a single payment at the end of 3 years based on a simple interest rate of 16.75%. Determine the amount of this single payment.

Answer 1

Kathy Owes $4975 in 6 years and $12,500 in 11 years

But since, Kathy wants to pay off the above obligation in 3 years with single payment.

Calculating the obligation in 3 years with single Payment:-

where, A1 = Obligation in 6 years = $4975

t1 = no of periods = 6 years - 3 years = 3 years

r = Interest rate = 16.75%

A2 = Obligation in 11 years = $12500

t2 = no of periods = 11 years - 3 years = 8 years

P = 3311.1481 + 5341.8803

P = $8653.03

So, the amount of Single Payment = $8653.03

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answered by: anonymous