Question

Payments of $1,250 in 1 year and another $2,000 in 4 years to settle a loan are to be rescheduled with a payment of $1,050 in 22 months and the balance in 32 months. Calculate the payment required in 32 months for the rescheduled option to settle the loan if money earns 5.85% compounded monthly during the above periods.

Round to the nearest cent

Answer 1

Given that,

A payment of $1250 in 1 year and another $2,000 in 4 years to settle a loan are to be rescheduled with a payment of $1,050 in 22 months and the balance in 32 months

interest rate = 5.85% compounded monthly

So, PV of payment of $1250 in 1 year and another $2,000 in 4 years using PV = FV/(1+r/n)^(n*t) is

PV = 1250/(1+0.0585/12)^(12*1) + 2000/(1+0.0585/12)^(12*4) = $2762.76

Comparing this with PV of rescheduled payments is

2762.76 = 1050/(1+0.0585/12)^22 + A/(1+0.0585/12)^32

=> A = $2125.64

So, Payment required in 32 months is $2125.64