Question

$4500 due three months ago but not paid and $2500 due in three months are to be replaced by a payment of $3000 in one month from now and two equal payments in two and four months from now. Find the equal payments if the interest rate is 4% percent annum. Use today as the focal date

Answer 1

CF1 = $4,500

CF2 = $2,500

CF3 = $3,000

CF4 = x

CF5 = x

r = monthly interest rate = 4%/12 = 0.33333333%

[CF1 * (1+r)^3] + [CF2 / (1+r)^3] = [$3,000 / (1+r)^1] + [x / (1+r)^2] + [x / (1+r)^4]

[$4,500 * (1+0.33333333%)^3] + [$2,500 / (1+0.33333333%)^3] = [$3,000 / (1+0.33333333%)^1] + [x / (1+0.33333333%)^2] + [x / (1+0.33333333%)^4]

$4,545.15012 + $2,475.16577 = $2,990.03323 + 0.993366527x + 0.986777059x

1.98014359x = $4,030.28266

x = $2,035.34869

Therefore, value of payment in two and four months is $2,035.35