Question

A debt can be paid by payments of $2,000 scheduled today, $2,000 scheduled in 2 ½...

A debt can be paid by payments of $2,000 scheduled today, $2,000 scheduled in 2 ½ years, and $2,000 scheduled in six years. What single payment would settle the debt five years from now if money is worth 9.2% compounded semi-annually? (Be sure to include a “timeline” display)

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Answer #1

Annual interest 9.20%
Semi-annual interest 4.60%
4.60%
Half year period Cash Flow PV factor, 1/(1+r)^t PV-Cash Flow-1
0 $2,000.00       1.0000 $2,000.00
5 $2,000.00       0.7986 $1,597.25
12 $2,000.00       0.5829 $1,165.87
10 $           -         0.6378 $           -  
PV $4,763.11
So this PV of $ 4,763.11 if settled on year 5, the PV should be same
Amount to be paid on year 5= 4763.11/0.6378
Amount to be paid on year 5= $7,468.06
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